An Analysis of the Finances of the

University of New Mexico RudyFichtenbaum

ProfessorEmeritusofEconomicsPresident,AAUP

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

What Data Will We Need?

Audited Financial Statements NOT Budgets. Why not?

•  Budgets are Just Plans •  What about those budget

holes?

Comparison of Data Sources: Audited Financial Statements vs. Budgets

Audited financial statements are certified by an independent outside 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 or reviewed by an outside 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

Comparison of Data Sources

Audited financial statements are certified by an independent outside 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 or reviewed by an outside party, and budgets are not subject to standard accounting rules and principles.

BasicAccoun+ngConstructs

Statement of Net Assets or The Balance Sheet

Assets Liabili;es&NetAssets

NetAssets

Long-TermDebt

AccountsPayable

Property,Plant&Equipment

AccountsReceivable

Cash&cashequivalents

Assets, LiabiliJes and Net Assets

•  Assets–Liabili;es=NetAssets

•  Assets+DeferredOuJlows–Liabili;es-DeferredInflows=NetPosi;on

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

Totalassets&deferredouJlows AdjustedTotalAssets&OuJlows

Factors AffecJng Assets

• Themajorfactoraffec;ngassetswastheremovaloftheLandGrantPermanentFund(LGPF)fromtheUniversity’sassets.

• TheStateofNewMexicochangeditspolicyregardingthepresenta;onoftheUniversity’sbeneficialinterestintheLGPFwithintheState’sComprehensiveAnnualFinancialReport(CAFR)

• TheUniversityusedtoshowitsshareofthenetassetvalueoftheLGPFasapermanentlyrestrictednetasset.Ineffectitwasanendowment.

• Thischangeinpresenta;ondoesnotimpacttheUniversity’sbeneficialinterestintheLGPFassets,andtheUniversitywillcon;nuetoreceiveitsbeneficialinterestintheearningsoftheLGPFasrequiredbylaw.

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

Totalcurrentassets Totalnon-currentassets

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-terminvestments Long-TermInvestments

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

Purchases of Capital Assets

$-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

2012 2013 2014 2015 2016 2017

Sources of Capital Funding

$102,605,287

$23,886,242

$331,833,614Capitalappropria;ons

CapitalGrants&Gics

FinancedbytheUniversity

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

TotalLiabili;es&Inflows AdjustedTotalLiabili;es&Inflows

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-CurrentLiabili+es

Totalcurrentliabili;es Totalnon-currentliabili;es

Factors AffecJng LiabiliJes

• OtherPost-EmploymentBenefits(OPEB)•  Star;ngin2008universi;eswererequiredtostartshowingaliabilityforpost-re;rementbenefits.Typically,post-re;rementbenefitsarehealthbenefitsforre;rees.

• Mostuniversi;esfundthesebenefitsoutofcurrentopera;onsasopposedtohavingassetssetasidetobalancetheliability.

• Havingtoshowtheseliabili;esreducedunrestrictednetassetsonpaper•  ToaccountforthischangeweaddtheOPEBliabilitybackintounrestrictednetassets

• Theothermajorfactorinfluencingliabili;esandunrestrictednetassetsisGASB68

GASB 68

• In2015majorchangeinhowpublicpensionsaretreatedinuniversityandcollegefinancialstatements

• Universi;esandcollegestoshowtheirpropor;onateshareofanyunfundedliabilityinapublicpensionssystemasanins;tu;onalliability.

• Affectses;mateofunrestrictednetassetsthemajorcomponentofreserves• Alsoaffectses;mateofchangeinnetassetsandes;mateofopera;ngexpenses.

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

RaJo of Debt to Total Revenue

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2012 2013 2014 2015 2016 2017

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

TotalNetAssets AdjustednetassetsGASB68,OPEB&LGPF

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

restrictednon-expendable(adjustedLGPF) restrictedexpendable

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 UnrestrictedadjustedforGASB68,OPEB,andLGPF

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

AdjustedTotalAssets&OuJlows AdjustedTotalLiabili;es&Inflows

Totaladjustednetposi;on

Revenues, Expenses & Changes in Net Assets

TotalRevenues

TotalExpenses

ChangeinNetAssets

Revenues, Expenses & Change in Net Assets

•  TotalRevenue–TotalExpenses=ChangeinNetAssets

•  TotalRevenue–TotalExpenses=ChangeinNetPosi;on

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

TotalRevenue TotalExpenses(AdjustedforGASB68&OPEB)

PaJent Revenue as a Percent of OperaJng Revenue

0%

10%

20%

30%

40%

50%

60%

2012 2013 2014 2015 2016 2017

Sources of Revenue in 2017

12%

25%

8%4%

38%

4%2%

3% 4%

Studenttui;onandfees

Grants&contracts

Salesandservices

Auxiliaryenterprises

State&localsupport

Federalfunding

Investmentincome(loss)

Gics

Other

Sources of Revenue (Excluding PaJent Revenue)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015 2016 2017

Studenttui;onandfees Grants&contracts Salesandservices

Auxiliaryenterprises State&localsupport Federalfunding

Investmentincome(loss) Gics Other

TuiJon v State AppropriaJon

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

2012 2013 2014 2015 2016 2017

Studenttui;onandfees Stateappropria;ons

Public Service as a Percent of OperaJng Expenses

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 2015 2016 2017

AllocaJon of Resources in 2017 (Excluding Public Service)

32%

21%6%4%

8%

8%

3%

11%

7%Instruc;on

Research

Academicsupport

Studentservices

Ins;tu;onalsupport

Opera;onandmaintenanceofplantStudentaid

Auxiliaryenterprises

Otheropera;ngexpenses

AllocaJon of Resources (Excluding Public Services)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015 2016 2017

Figure27Alloca;onofResources

Instruc;on Research Academicsupport

Studentservices Ins;tu;onalsupport Opera;onandmaintenanceofplant

Studentaid Auxiliaryenterprises Otheropera;ngexpenses

Salaries for Professors

Salaries for Associate Professors

Salaries for Assistant Professors

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

Subsidy for Intercollegiate AthleJcs

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2012 2013 2014 2015 2016 2017

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

ChangeinNetPosi;on(AdjustedforGASB68&OPEB) ChangeinNetPosi;onasreported

Net Income Margins

0%

1%

2%

3%

4%

5%

6%

7%

8%

2012 2013 2014 2015 2016 2017

Reportednetincomemargin Adjustednetincomemargin

Cash Flow Public

CashFlowsfromOpera;ngAc;vi;es

CashFlowsfromNon-CapitalFinancingAc;vi;es

CashFlowsfromCapitalFinancingAc;vi;es

CashFlowsfromInvestmentAc;vi;es

NetIncrease(Decrease)inCash

Revenues, Expenses & Change in Net Assets

•  Opera;ngCashFlow=NetCashOuJlowfromOpera;ons+NetInflowfromNon-CapitalFinancing-Interest

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

Cash Flow RaJo

0%

1%

2%

3%

4%

5%

6%

7%

8%

2012 2013 2014 2015 2016 2017

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 other 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

WhatareReserves?

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

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

ExpendableNetAssets(AdjustedforGASB68&OPEB)

Howdoweknowifwehaveenough?

Viability RaJo

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2012 2013 2014 2015 2016 2017

Primary Reserve RaJo

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

2012 2013 2014 2015 2016 2017

Moody’sScoreCard

Moody’s Bond RaJngs in Higher EducaJon Public Sector

5The Financial & Strategic Outlook for Private Colleges

Moody’s Rates Over 500 Universities in the USIncludes vast majority of sector debt

» Nearly 275 private colleges and universities» Over $85 billion of rated debt outstanding» Median rating of A3 by number of institutions» Median rating of Aa2 weighted by rated debt

» Over 230 four-year public universities» Almost $125 billion total rated debt outstanding» Median rating of A1 by number of institutions» Median rating of Aa1 weighted by rated debt

Source: Moody's, ratings as of December 29, 2014. S-T represents those with only a short-term rating

812

4146

69

22 19

82 0 3 1

0

10

20

30

40

50

60

70

80

Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 SG S-T

US Public University Ratings

1511

20

25

33

3840

33

26

21

12

00

5

10

15

20

25

30

35

40

45

Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 SG S-T

US Private University Ratings

Chart 2

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JANUARY 17, 2017 4

1785184 | 302561398

U.S. Not-For-Profit Higher Education 2017 Sector Outlook: Credit Quality Should Stay Stable Despite Headwinds

Chart 2

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JANUARY 17, 2017 4

1785184 | 302561398

U.S. Not-For-Profit Higher Education 2017 Sector Outlook: Credit Quality Should Stay Stable Despite Headwinds

RaJngs Systems of Moody’s and S&P

Moody's Standard&Poor'sAaa AAAAa1 AA+Aa2 AAAa3 AA-A1 A+A2 AA3 A-Baa1 BBB+Baa2 BBBBaa3 BBB-

SG(SpeculativeGrade) SG(SpeculativeGrade)

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

Moody’s

• Moody’shasjustcreatedanewscorecardtomeasurefinancialperformance,onethatcorrespondswiththecreditra;ngsthatitgivestovariouspublicandprivateins;tu;onsofhighereduca;on.

Scorecard

• Thescorecardconsidersfourbroadareasofperformance:• marketprofile• opera;ngperformance,• wealthandliquidityand• Leverage.

Higher EducaJon Score Card

Scores for Categories ReflecJng Bond RaJngs

Process

• Theneachscoreisthenmul+pliedbytheweightsinslide61resul+nginanaverageweightedfactorscore.

• TheaverageweightedfactorscoreisthenmappedoneofMoody’s20creditra+ngs

• Thescoresaresomewhatcounterintui+veinthat20istheworstscoreand1isthebestscore.

Average Weighted Factor Scores and Credit RaJngs

Scores for Public InsJtuJons

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'sRa;ng A1 Aa3 A1 Aa2 Aa2 Aa3

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

0

2

4

6

8

10

12

14

16

18

20

2012 2013 2014 2015 2016 2017

Moody’s RaJng for the University of New Mexico

• Thelast;meMoody’sdidanactualra;ngfortheUniversitywasinFebruary2017anditassignedtheUniversityanAa2ra;ngwithanega;veoutlook.

• Thisisconsistentwiththescoresjustpresented• Moody’sgivesthenega;veoutlookbecauseofincreasedpressureontheUniversity’sopera;ngperformance.

•  ItcitesMedicaidreduc;onsbecauseofrevenueshorJallsinthestateduetoweakerthanan;cipatedtaxrevenuecollec;ons.

•  Italsocitessustainedanddeepenrollmentdeclinesleadingtoareduc;onintui;onrevenueasafactorthatcouldleadtoadowngrade.

Total Headcount

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2012 2013 2014 2015 2016 2017 2018

HeadcountatBranches

HeadcountAlbuquerque

FTE Headcount

-

5,000

10,000

15,000

20,000

25,000

30,000

2012 2013 2014 2015 2016 2017 2018

FTEatBranches

FTEAlbuquerque

Conclusion

• TheUniversityisinverygoodcondi;onfinancially,butitisfacingsomeheadwinds.• Itisalsothecasethatfacultysalariesarenotcompe;;ve,par;cularlyatthehigherranks.

• Giventheoverallcondi;onoftheUniversitythissuggeststhatithasnotmadefacultysalariesapriority.