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Budget and Planning Overview

MICHIGAN STATE U N I V E R S I T Y. Budget and Planning Overview. Context. Bolder by Design Financial Framework Budget

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Budget and Planning Overview

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  1. MICHIGAN STATE U N I V E R S I T Y Budget and Planning Overview

  2. Context • Bolder by Design • Financial Framework • Budget • While maintaining credit rating and debt capacity; sufficient working capital and liquidity; investment performance and endowment; comparability to peer financial composition and performance

  3. MICHIGAN STATE U N I V E R S I T Y Budget Planning – Pro forma Preliminary 2014-15 budget approved by the BOT in June 2013 *Includes 1.5% general merit, 0.5% college market, and 0.5% provost market pool ** Includes 1.5% general merit, 0.75% college market, and 0.5% provost market pool ***Infrastructure financing

  4. MICHIGAN STATE U N I V E R S I T Y MSU Revenues: MSU planning requires $17M from two sources

  5. 1% Planning Parameters

  6. Long-Term Financial FrameworkGap Analysis to Inform Long-Range Planning Update ten-year analysis of critical university areas requiring long-term support

  7. MICHIGAN STATE U N I V E R S I T Y Budget Planning – Pro forma Preliminary 2014-15 budget approved by the BOT in June 2013 *Includes 1.5% general merit, 0.5% college market, and 0.5% provost market pool ** Includes 1.5% general merit, 0.75% college market, and 0.5% provost market pool ***Infrastructure financing

  8. MICHIGAN STATE U N I V E R S I T Y Financial Health

  9. Multi-Year Perspective • MSU has managed through the most difficult decade of economic circumstances in its recent history • Despite Michigan fiscal circumstances being more severe than in surrounding states, MSU financial indicators approximate the Big Ten median • Reflective of prudent financial policies, a focus on cost-containment, and efficient operations

  10. Economic Trends • Federal fiscal policy suggests continued pressure to reduce “discretionary” spending including research activities and possibly financial aid, next Sequester deadline is January 15, 2014 with an estimated $20B impact • In addition to the above, possible Medicare – Medicaid reimbursements including support for graduate medical education at risk • Federal Affordability of Care Act initiates most significant health care changes in decades, potentially increasing baseline health care costs beginning in FY15 • Economy improving at state level, full spring back not anticipated

  11. MSU Credit Rating and Debt • MSU’s Aa1 long term credit rating reflects its overall financial strength • Current external debt approximates $860M which includes $256M for Residential and Hospitality Services and $56M for Athletics • An additional $169M in short-term commercial paper to be repaid by internal units • Other obligations include: Internal loans of $20.5M, Federal student loans of $38M, and current leases totaling $44.3M • Ongoing need to prioritize debt funded projects, manage debt capacity, debt service availability, and ratings optimization … additional debt capacity of $300M to $500M available within current rating, additional capacity at lesser ratings

  12. Sufficient Working Capital & Liquidity • Currently exceeds targeted liquidity level of $284 million • Liquidity risk may exist if significant deviations from planned state or federal allocations occur • External line of credit established to optimize longer-term investment strategy

  13. Investment Performance & Endowment Status • Over ten years, MSU investment performance ranks in the 16th percentile versus national peers, most recent year performance at 12.1 percent ranks in the top third • Annual giving low in Big Ten but improving, donor based financial aid is lowest in Big Ten, lags median by $20 million • Endowment growth (includes return and annual giving) ranks 6th in Big Ten, total endowment is noted at $1 Billion, and includes the Foundation at $327M

  14. Peer Financials • Combined tuition & fees and appropriations per student over $1,700 less than Big Ten median, representing over $75M in annual revenue • Contracts and grants received in immediate past year at $478 million (reflects impact of Sequester), up 27 percent over 5 years • FY12 research expenditures up $53M over previous year, at 11.6 percent reflects the largest institutional increase across the Big Ten

  15. MICHIGAN STATE U N I V E R S I T Y Revenues

  16. MICHIGAN STATE U N I V E R S I T Y University Revenues 1989-1990 All Funds Revenue - $734M 2012-13 All Funds Revenue - $2.3B Proportion of Revenue Appropriations – 28% Sponsored Program – 19% Tuition– 18% Auxiliary – 16% Gifts – 6% Proportion of Revenue Tuition – 31% Sponsored Program – 19% Auxiliary – 13% Appropriations – 11% Gifts – 9%

  17. MICHIGAN STATE U N I V E R S I T Y State of the State • Manufacturing job growth leads all states • Added 221,00 private-sector jobs over 3 years • Per capita income growth tied first in Great Lakes states • Out migration trend halted, population up for first time since 2003-04 • Make Michigan a leader in STEM fields

  18. MICHIGAN STATE U N I V E R S I T Y State Issues • There remains a negative view of universities in parts of the legislature – assumption that our costs are out of control (Progress evident but not over) • Continuing push on transferability of credits • Continued efforts to micromanage several aspects of University activity – including benefits for same-sex couples, stem cell research and faculty bias • However, we are starting to see some recognition of the role the State has had in raising the costs of education

  19. MICHIGAN STATE U N I V E R S I T Y Appropriation Trends • Appropriations down 15% over last decade • State appropriations approximate 20% of general fund budget • Recent cycles have yielded modest increases ~1-2% • Future year increases anticipated given consistent funding model formulations and state economic performance • Current state economic indicators anticipate a 2.9% increase to GF/GP in 2014 and 4.4% in fiscal 2015

  20. MICHIGAN STATE U N I V E R S I T Y Appropriations History If increased at inflation, MSU appropriations would be $120M more than current levels Appropriations down $44M over 10 years

  21. MICHIGAN STATE U N I V E R S I T Y Performance Funding Model • Continuation of Business Leaders for Michigan metrics and scaling • Undergraduate critical skills degrees • R&D Expenditures • Graduation rate • Continuation of tuition restraint provisions for resident undergraduate students, particularly in the context of incremental state support • Need to address variance in per FTE funding among State’s research universities • Institutional Support as % of Core Expenses • Total undergrad FYES (scaling)

  22. MICHIGAN STATE U N I V E R S I T Y State Outlook • State financially is recovering • $900 Million Surplus • Big push for tax cut • Transportation $1 b shortfall • DCH $200 M shortfall • County winter budgets exhausted (salt, plows) • State pension liability growing • Base funding for University expected to be >3% - but how much won’t be known until Feb. • Opportunities for initiative funding – Engineering Capacity, Autism, Ag Processing/Workforce

  23. MICHIGAN STATE U N I V E R S I T Y Accelerating Growth for Michigan Food and Agriculture MSU Food Processing and Innovation Center (FPIC) • Space for high-growth companies to innovate, scale up and market new products/processes • State of the art USDA/FDA facility permits product and process development and finished products • Flexible production capabilities • Surveyed high-growth firms show interest in facility Food Processing Workforce Development Program • Partner with community colleges to establish 2-year training programs • Revitalization of fruit and vegetable lab Detroit Initiative for Advanced Food Processing and Export • Phase I – Develop advanced-processing-and-export plan while strengthening existing city capacity • Phase II- Implement and create state-of-art processing center

  24. MICHIGAN STATE U N I V E R S I T Y Accelerating Growth for Michigan Food and Agriculture

  25. MICHIGAN STATE U N I V E R S I T Y Appropriation: “What if” Analysis • Pro-forma FY15 MSU Budget projected a $17M revenue increase from a combination of Appropriations at 2% ($2.5M X 2) and Resident Undergrad Tuition at 3% ($4M X 3) • Alternatives • A 5% appropriation increase and tuition capped at 1% balances the proposal • Caps at 2% and 3% would provide additional resources of $4M and $8M, respectively • A 4% appropriation increase and tuition capped at 1.75% balances the proposal. • Caps at 2% and 3% would provide additional resources of $1M and $5M respectively

  26. MICHIGAN STATE U N I V E R S I T Y Tuition and Fee Considerations • Constrained ability to increase tuition and fee rates • Public sensitivity to non-resident student mix • Peer standing across dimensions • Resident/NR tuition rates • Residency mix • Structure

  27. MICHIGAN STATE U N I V E R S I T Y Alternate Tuition Approaches Improve existing incentives for accelerating time to degree Accommodate increasing numbers of advance placement credit and student desire to affiliate with a major sooner in academic career Maintain economic opportunity for students to attain degrees in college of choice Increase comparability of tuition and fee structure with peer institutions

  28. MICHIGAN STATE U N I V E R S I T Y Alternative Tuition Structure by Core vs Professional and Other Core college model; includes “admit when ready” modification

  29. MICHIGAN STATE U N I V E R S I T Y Michigan Resources per Student

  30. Estimated Big Ten Non-Resident Undergraduate Enrollment % MICHIGAN STATE U N I V E R S I T Y Big Ten Avg. 36% * Fall 2012

  31. MICHIGAN STATE U N I V E R S I T Y 2012 Federal Budget Sources and Uses Total Federal Budget Sources: $3.7T Total Federal Budget Uses: $3.7T Source: American Association for the Advancement of Science

  32. MICHIGAN STATE U N I V E R S I T Y Status Update • FY14 Omnibus Appropriations legislation for entire federal government passed the House of Representatives by a vote of 359-67 on January 15. • Senate passed the Omnibus on January 16 by a vote of 72-26. • Omnibus funds all federal agencies, such as USDA and the National Science Foundation, through the end of September 2014. • Some relief from sequestration provided for FY14 and FY15 in the 2013 Bipartisan Agreement Act • Sequestration cap lifted by $63 billion ($45 billion in FY14 and $18 billion in FY15). • Sequestration Cuts remain in place from FY16 to FY20.

  33. MICHIGAN STATE U N I V E R S I T Y Federal Discretionary Spending

  34. MICHIGAN STATE U N I V E R S I T Y Federal Budget Request: Research

  35. MICHIGAN STATE U N I V E R S I T Y Federal Budget Request: Research

  36. MICHIGAN STATE U N I V E R S I T Y FRIB Federal budget includes $55 Million for FRIB State of Michigan Strategic Fund to induce FRIB bonds for $91M on February 25

  37. MICHIGAN STATE U N I V E R S I T Y Pell Grants Funded at last year’s level of $22.8 billion. Increased mandatory spending will bump up the maximum award next year by $85 to $5,730. Number of recipients is expected to increase from 9.1 million to 9.3 million.

  38. MICHIGAN STATE U N I V E R S I T Y Graduate Programs Department of Education • Graduate Assistance in Areas of National Need (GAANN) and Javits Fellowship funded $29.3 million – the same level as last year. NSF • EHR/Division of Graduate Education - $846 million ($13 million more than FY13) • EHR/Alliances for Graduate Education - $7.84 million (the same as last year)

  39. MICHIGAN STATE U N I V E R S I T Y Next Steps Department of Education • Graduate Assistance in Areas of National Need (GAANN) and Javits Fellowship funded $29.3 million – the same level as last year. NSF • EHR/Division of Graduate Education - $846 million ($13 million more than FY13) • EHR/Alliances for Graduate Education - $7.84 million (the same as last year)

  40. MICHIGAN STATE U N I V E R S I T Y Expenses

  41. MICHIGAN STATE U N I V E R S I T Y Expense Considerations • Financial Aid – Federal budget funding of high-need students, distribution of family income, appropriate discounting • Faculty salaries – Peer monitoring salary/compensation; Big Ten ranging upward • Coalition salaries – Per contract • Health Care – ACA impact and planning, continuation of 5% cost cap • Utilities – Continuation of energy transition plan, commodities monitoring • Research – Federal budget impact on grants and contracts

  42. MICHIGAN STATE U N I V E R S I T Y Total Student Assistance 2012-13 Student Assistance - $625.3M 2001-02 Student Assistance - $242M Over the last five years, MSU has increased financial aid by 50% over the last five years, more than 2 times the increase to resident undergraduate tuition rates

  43. MICHIGAN STATE U N I V E R S I T Y Financial Aid Rates of Change and Tuition/Appropriation Rates of Change

  44. MICHIGAN STATE U N I V E R S I T Y Family Income Distribution Adjusted to 2013 dollars

  45. MICHIGAN STATE U N I V E R S I T Y Significant Affordable Care Act Provisions Other Notes: Other provisions include W-2 reporting, group health plan fees, preventative care additions, revised flex spending limits, auto enrollment, and employer access to state exchange. In total, anticipated cost increases of $0.3M to $0.4M are anticipated.

  46. MICHIGAN STATE U N I V E R S I T Y 2012-13 Big Ten Faculty Salaries *Median does not include Northwestern

  47. MICHIGAN STATE U N I V E R S I T Y 2012-13 Big Ten Faculty Compensation Big Ten Median $135,344* *Median does not include Northwestern

  48. MICHIGAN STATE U N I V E R S I T Y 2012-13 Big Ten Faculty Compensation (Adjusted for post-retirement healthcare) Big Ten Median $133,852* *Median does not include Northwestern

  49. MICHIGAN STATE U N I V E R S I T Y 2011-12 Big Ten RA Compensation Big Ten Median $17,652

  50. MICHIGAN STATE U N I V E R S I T Y 2011-12 Big Ten TA Compensation Big Ten Median $16,426

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