Subject:
Date:
From:
To:
2009 First Quarter Financial Report
October 22, 2008
Lee Walker
Bill Shkurti
Attached is the First Quarter Financial Report which reviews financial performance for year
end FY 2008 and first quarter FY 2009. The University finished FY 2008 in relatively good
shape financially. The Health System’s financial performance exceeded expectations,
enrollments exceeded projections, state support increased and most auxiliaries and
affiliated units were within budget targets.
Of concern however was the performance of the University investments. Given the
weakness of the national economy and volatility of the stock market lower rates of return
were to be anticipated in FY 2008. However the impact is significant. Unrealized
investment losses resulted in the endowment return dropping from +18% in FY07 to -8% in
FY08. This drop resulted in $575 million dollars of fewer revenues reported in the
university financial statement in FY2008 as compared to FY 2007.
First quarter results remain generally favorable. Enrollments continue to come in above
projections. However the struggling national economy continues to play havoc with state
tax revenues and university investment returns. We have reserves to protect against
potential reductions in anticipated state support levels; however the combined impact of
the losses in university investment income and a reduction in state support would be
challenging.
We will continue to monitor the situation and will provide you with a mid year report in
February. If you would like any additional information please let me know.
Attachment
1
Fiscal Affairs Committee
OSU Board of Trustees
First Quarter Financial Report
November 7, 2008
I. Purpose of this Report
II. University Medical Center
III. Capital Projects
IV. Columbus Campus Enrollments
V. State Support
VI. Research
VII. Development and Fund Raising
VIII. Investments
IX. General Funds
X. Columbus Campus Auxiliaries
XI. Bond Sales and Debt Management
XII. Regional Campuses
XIII. Affiliated Entities
XIV. Reserves
XV. Systems
XVI. Financial Performance Goals
XVII. What Happens Next?
XVIII. Summary and Conclusion
Appendices
A. Status of Development Efforts for Projects with a Significant Fund
Raising Component
B. Status of Deficit Reduction Plans
C. Status of Earmarked Reserves
D. Status of University Lines of Credit
E. Status of Financial Performance Goals
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I.
Purpose of this Report
The national economy continues to be volatile and unstable. The fluctuations and
downturns in the market are impacting our investment returns. We need to continue
to be diligent in monitoring the national financial trends in order to manage our
investments appropriately. The economy’s woes are also impacting state tax
revenues which continue to be below revised revenue projections. Governor
Strickland has implemented two rounds of state budget reductions. While Ohio State
and other universities and colleges have been very fortunate that the Governor has
continued his strong support for higher education funding by protecting the State
Subsidy and financial aid programs for students from the first two rounds of
reductions, the University did absorb over $6.1M in funding reductions to line item
appropriations including a reduction of over $1.7M at the Ohio Agricultural Research
and Development Center and over $1.2M to the Cooperative Extension program.
Given the economic situation that the nation and state are experiencing, it is more
critical than ever that the University diversify its financial resources and closely
monitor and manage all sources of funding.
As the University seeks to diversify its financial resources, it needs to behave more
entrepreneurially. To the degree that we are successful, this will reduce reliance on
state funds, which are becoming less predictable and less stable, even with the
increases passed for this biennium.
As we become more entrepreneurial, we must also be prepared to undertake a
different and much more diversified portfolio of risk. This in turn requires a
strategically based assessment of risk and risk management.
The middle of the fall quarter provides a good opportunity to review these issues
because the annual budget has been adopted, the annual financial statements have
been completed and first quarter results are available.
This quarterly financial report reflects a continuing shift away from a focus on General
Funds budgets to a broader assessment of financial conditions involving all funding
sources. This is an evolutionary process and continued improvement will be made.
This report is designed to answer three questions for the current fiscal year:
1. Where are the areas of largest risk?
2. Where are potential problems most immediate?
3. How will we know these problems have been addressed?
In addition, we need to continue to monitor the long term financial situation for The
Ohio State University.
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II.
Medical Center
A. Health System
The Ohio State University Health System continued its planned growth during
Fiscal Year 2008 with the addition of two floors on the Ross Heart Hospital,
expansion of the digestive disease program, development of additional faculty
space, and expanding the breadth of outpatient services at the Morehouse
Medical Plaza on Kenny Road. The new digestive disease clinical areas opened
in July 2007 and the two new floors of the Ross Heart Hospital opened the end
of June 2008.
Fiscal Year 2008 inpatient admissions increased 1.3%, while outpatient volume
grew by over 25,000 patients or 2.8%. Total Operating Revenue increased
$103M or 7.6% due to volume increases along with selective rate increases.
Expenses (excluding depreciation, interest and interfund transfers) increased
$90M or 7.5%. The Gain from Operations was $108.3M, versus $100.3M in
2007. The operating EBIDA (earnings before interest, depreciation and
amortization) percentage was 12.1% the same as the prior year. Days cash on
hand was 52.9 days versus 47.8 in 2007 and debt service coverage was 7.3
times versus 7.7 in 2007. All three indicators exceeded the targets established
in the long range financial plan.
The Health System’s Excess of Revenue over Expense for 2008 was $116.9M.
After investing $69.4M in research, education and strategic programs, the
change in net assets was $48.9M. A total of $104.0M was invested in projects
and capital equipment, of which $41.6M was related to the Master Facility Plan,
including the addition of two floors on The Ross Heart Hospital, the new MRI
facility, the Digestive Health Center, the12th Avenue Faculty Office Tower and
design costs for new clinical and faculty space.
Year-end cash and investments totaled $214.2M vs. $188.4M on June 30, 2007.
Unrestricted cash totaled $186.9M vs. $157.4M a year ago.
For the first quarter of FY 2009, the Health System’s actual volumes, revenues,
and expenses tracked close to budget. Inpatient admissions were 0.3% over
budget and outpatient visits were 0.2% over budget. Total Operating Revenue of
$393.3M was 0.6% below budget with volumes at Ross Heart Hospital
contributing to the negative variance. Total Operating Expenses of $361.0M
were 1.3% below budget with salaries and benefits contributing to the positive
variance. Excess of Revenue over Expense (before transfers for research,
education, and strategic programs) of $34.2M was 4.4% above budget.
Operating EBIDA, cash, and debt service indicators are above target through the
first three months of FY 2009.
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B. Malpractice Reserves
The Health System Self Insurance Fund I and Oval Limited (the captive
insurance company of the University) held reserves of $47.3M and the Self
Insurance Fund II had reserves of $108.1M as of June 30, 2007. During the first
quarter, ending September 30, 2008, the Self Insurance Funds and Oval Limited
have been fully funded.
III.
Capital Projects
Thompson Library Renovation is scheduled for completion in June 2009. The
project is on time and on budget.
Ohio Union Replacement project is approximately 50% complete and is
scheduled to open in fall 2010.
Newark Campus—Warner Library and Student Center was completed on time
and on budget. The facility is occupied and operational.
The Medical Center Facilities Plan is underway. Contracts for Architects and the
Construction Manager for the East of Cannon portion of the project are currently
being negotiated.
IV.
Columbus Campus Enrollments
A. In this report we are using headcount enrollments for the Columbus Campus.
Headcount enrollments are running higher than budget projections for the
combined summer and autumn quarters. Through two quarters, resident and
non-resident undergraduate enrollments were 2.0% and 4.3% higher,
respectively, than anticipated. While new freshmen enrollments were essentially
on target, more juniors and seniors returned than expected and the enrollments
of transfer students were higher than anticipated. The higher undergraduate
headcount translates 0.3% FTEs above budget projections.
For graduates, resident and non-resident enrollments were also higher than
expected, at 1.2% and 0.6%. Professional headcounts, too, were higher with a
variance from projected of 1.6% for resident and 4.7% for non-resident
enrollments.
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B. We recommend no changes in our financial projections at this time. Enrollments
will continue to be monitored and evaluated.
Category
Undergraduate
Graduate
Professional
Total
Projected
Headcounts*
49,755
17,376
4,300
71,431
Actual
Headcounts*
50,883
17,542
4,381
72,806
Difference in
Headcounts
1,128
166
81
1,375
%
2.3%
1.0%
1.9%
1.9%
NOTE: Includes total of Summer and Autumn Quarters
SOURCES: Projected: Budget Planning (Headcount Enrollment Projection Summary, May 16, 2008)
for Columbus Campus; Actual: Quarter 15th Day Enrollment, University Registrar.
V.
VI.
State Support
A.
Because state revenues continue to lag estimates, the Governor directed that
all state agencies cut line items by 4.75%, but did exempt State Share of
Instruction and the Capital Component from the cuts. We will receive
approximately $6.1M less in state appropriations than originally estimated
including a reduction of over $1.7M at the Ohio Agricultural Research and
Development Center and over $1.2M for the Cooperative Extension program.
B.
The Chancellor will be issuing recommendations to the Governor on a new
funding formula for Ohio’s colleges and universities. The new formula will likely
be based on enrollments, as well as performance measures in support of the
Strategic Plan for Higher Education 2008-2017 released in March. OSU has
been active in the conversations concerning the development of the new
proposal and will continue to monitor the proposal as it moves forward.
C.
State revenues continue to lag projections. Tax revenues exceed revised
estimates by 2.2% for the month of September and 0.8% for the quarter.
Research
A. After the first quarter, Indirect Cost Recoveries are running 6.5% higher than FY
2008 and above college FY 2009 projections. New awards are down 2.9%
compared to the first quarter of FY 2008. It is too early to draw any conclusions
about year-to-year growth.
B. OSURF – Finished FY 2008 with a substantial operating balance. However, the
use of interest off the balances to fund continuing operations is a concern that
needs to be addressed in FY 2009.
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C. There are other aspects of financial risk associated with sponsored research that
will continue to need attention. These include: meeting human subjects research
compliance regulations, handling of animals, hazardous substances, sponsor
requirements, conflicts of interest, and licensing issues.
VII.
Development and Fund Raising
A.
Operating Budget
Development had FY 2008 operating resources of $22.9M and a year-end
operating budget balance of $1.7M. Budget for FY 2009 is $24.3M, a 6%
increase. In addition, $750,000 in on-going funding and $1.3M in cash from
FY 2008 carry forward was set aside for campaign start-up funding.
B.
Gift Receipts
Cash receipts, including current use gifts and additions to endowments, but
excluding grants processed through the Research Foundation increased 5%
in FY 2008, following an 11% increase in FY 2007. Overall, fund-raising
activity, which includes gifts, private grants, pledge commitments and
planned gifts, decreased by 8% from FY 2007.
C.
Major Capital Campaigns
A status report on capital projects with a development funding component is
shown as Appendix A. The BRT fund-raising is under review with the
Medical Center and the Office of Development in conjunction development of
the fund-raising plan for the Medical Center Master Facility Plan. Additional
funds have been received for Jennings Hall, Knowlton School of Architecture,
Mechanical Engineering replacement and Page Hall. These projects still
have remaining balances. The Thompson Library Renovation project has
met its fund-raising goal with the help of the Athletics Department.
VIII.
Investments
A.
At the end of FY 2008, the University had $2.1B in long-term investments,
which included $1.5B in the gifted endowment, $598M in the Long-Term
Operating Fund, $21M in the President’s Strategic Investment Fund and $5M
in the Maintenance and Renewal Fund. This total is in comparison to $2.3B
at the end of FY 2007. Short-term investments were $778M in FY 2008
compared to $717M in FY 2007.
B.
As the University’s Long-Term Investment Pool continues to diversify its
investments, overall risk of the portfolio will decline. The university has hired
a Chief Investment Officer who will continue to strengthen processes and
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policies to manage the risks associated with the long-term investment
markets.
IX.
C.
Revised Investment Policies for long-term and short-term investments were
approved by the Board of Trustees in June 2008.
D.
For the 1st quarter of the new fiscal year, ended September 30, 2008, the
Long-Term Investment Pool declined to an anticipated $1.8B or down
approximately 11.7%. Financial markets experienced extraordinary
pressures during the quarter, driving the U.S. stock market down
approximately 9% and international stock markets down almost 22%.
General Funds
A. College and Support Unit operating deficits totaled $53.0M at the close of 2008
or $17.5M more than FY 2007. College and Support Units reduced deficits
identified before FY 2008 by $10M. However, $27.5M in new deficits were
identified. (See Appendix B)
B. The largest operating deficit is in the College of Math and Physical Sciences and
remains a concern. New management has been put in place in the College and
a new deficit reduction plan has been reviewed and will be implemented this
year.
C. Student Financial Aid is not included in the deficit report because the program
has a positive cash balance. However, we continue to monitor financial aid
spending to ensure that annual commitments do not exceed the annual budget.
In FY 2007, $7.5M more was committed than was budgeted. The projected FY
2009 deficit for undergraduate Student Financial Aid has been reduced to
$676,000. This reduction in the projected deficit is a combined result of lower
than projected expenditures and a planned increase of $3.1M in university
support of undergraduate financial aid. Under current trends, the projected overcommitment in Financial Aid spending should be eliminated by 2010, two years
ahead of the original projected schedule.
X.
Columbus Campus Auxiliaries
A. Department of Recreational Sports: Operating revenues finished nearly $3M
ahead of budget in FY 2008, due primarily to the adjustment in the schedule for
the bond issuance to pay off remaining construction debt ($43M). Interest only
payments continued through the first quarter of FY 2009. The FY 2008
surpluses currently are set aside as a hedge against the uncertainty in the
financial markets and potentially could be used to reduce either the amount to
be borrowed or the debt amortization time period. Membership revenue from
faculty and staff increased from $1.6M in FY 2007 to $1.7M in FY
8
2008. The quarterly student fee increased from $81 to $82 fall quarter 2008.
First quarter FY 2009 results are in line with budget.
B. Other Student Affairs Auxiliaries
1. The Blackwell: Occupancy in FY 2008 remained at 73%. Net income for
FY 2008 was $860,000, which was $300,000 over budget. Fund equity
increased from $260,000 to $1,120,000. The Blackwell is budgeting for a
small operating loss during FY 2009 due to the impacts of the construction of
the SAS building and parking garage, but fund equity will remain positive.
While first quarter FY 2009 revenues are slightly higher than projected, it
remains too early to tell if this trend will continue.
2. Schottenstein Center: During FY 2008 the Schottenstein Center, after
transfers to the reserves of $180,000, has a net operating deficit of $4,900.
Reserves through FY 2008 total $5.7M which includes monies designated to
pay for the new scoreboard for arena. First quarter revenue and
expenditures are in line with the projections.
3. Housing: FY 2008 academic year student housing operations at Columbus
and regional campuses maintained an occupancy rate above 95% and had a
net surplus of $800,000 after increasing reserves by $3.2M. Total net capital
reserves at the end of FY 2008 were $17M. Fall quarter 2008 occupancy is
99%.
C. Athletics: During FY 2008, the Athletic Department had net income of
$2,796,000 on total income of $117.9M. This $2.8M was transferred to Capital
reserves for future department projects. First quarter FY 2009 operating
revenue and expense are within budget.
XI.
Bond Sales and Debt Management
The Ohio State University is in the process of selling the Series 2008 bonds for
construction projects. The variable rate bonds were sold the week of September
30, 2008. Because of market conditions, the first sale was done in term mode to
mature on January 14, 2009 at a 3.75%. It is our intent to convert to a weekly reset
mode in January. Due to market volatility, the fixed rate bond issuance has been
put on hold until there is more stability in the long-term tax exempt market. This
could take weeks to months. The new series of commercial paper will likely begin
sometime in November.
In March 2005, the Board of Trustees adopted a series of policies designed to
assure that university debt is managed effectively and the University’s AA credit
rating is protected. The first goal in implementing this policy was to limit the 2005
and 2007 bond issues to $400M and $450M, respectively. In November 2006 the
Board of Trustees approved a limit of $500M for the 2009 bond issue. There was no
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new bond debt issued in FY 2008. The FY 2007 bond issue has been moved to FY
2009.
Internal lines of credit are within Board guidelines. The University has 25 lines of
credit with an outstanding balance of $92M with all LOCs in compliance. This
compares to 24 lines of credit with an outstanding balance of $90.5M at the end of
FY 2007. During FY08, five lines of credit were paid off, and six new LOCs were
established. During the past year, the total outstanding balance has increased by
$1.5M.
Lines of credit do not directly affect debt capacity, but they can have an impact on
net cash available and can reduce the amount of uncommitted funds available.
See Appendix D for detailed information on the LOCs.
XII.
Regional Campuses
These are the combined summer and autumn quarter headcount enrollment figures.
Because of their relatively small size, regional campus enrollment fluctuations of
+5% are not unusual. ATI’s declining enrollments appear to have stabilized; its
progress, as well as enrollment variances on the regional campuses, continues to
be monitored.
Campus
Projected1
Lima
Mansfield
Marion
Newark
ATI
Actual2
1,774
1,952
2,117
3,219
915
1,798
1,931
2,147
3,043
921
Difference
24
-21
30
-176
6
%3
1.4
-1.1
1.4
-5.5
0.7
Hawks Nest Golf Course:
ATI assumed operational control of Hawks Nest Golf Course in October, 2007 and
ended its first year of operations (9 months) with net income of $7,249 on total
revenue of $306,626. In addition to implementation of an annual membership
program, Hawks Nest management secured nineteen golf outings and two new golf
leagues. During Spring Quarter, three courses were taught at Hawks Nest that
serviced 66 students from the Turfgrass Management program.
1
2
3
Projected FY 2009 headcounts provided by regional campus fiscal officers.
Headcounts per Registrar’s 15th Day Report
Percentage difference between actual and projected headcount enrollment for FY 2009 summer and autumn terms.
10
XIII.
Affiliated Entities
Affiliated entities are separate organizations that are “closely related” to the primary
mission of the University. This relationship is described in more detail in the
University’s annual financial statements.
Organization
In Consolidated Financials
Campus Partners
Transportation Research Center
OSU Foundation
OSU Physicians
OSU Research Foundation
Reading Recovery and Early Literacy
OSU Managed Health Care Systems
Prologue Research International
Oval Limited
UMC Partners
Not in Consolidated Financials
SciTech
FY08 Annual Revenues
(In Millions)
FY08 Equity Balance
(In Millions)
$12.2
$37.5
$54.6
$263.3
$387.8
$5.3
$3.5
$6.3
$5.0
$0.0
($13.3)
$11.0
$490.2
$37.4
$8.3
$4.9
$0.6
$2.2
$2.5
$0.0
$3.7
$7.8
Most affiliated entities are stable financially. A process is in place for regular
monitoring of these entities through the Affiliated Entities Committee of the Board of
Trustees.
UMC Partners: The UMC Partners have been dissolved and the remaining $5.7M
deficit from the entity is being addressed by the Medical Center.
Prologue: During FY 08, Prologue restructured operations resulting in an increase
in equity of $1.5M.
Campus Partners: The University is working with Campus Partners on developing a
business plan for FY2009-13. FY08 net operations improved from FY2007 resulting
in a slower erosion of equity vs. year ago. Although occupancy rates have
improved, retail vacancy continues to be a concern.
SciTech: FY08 revenues improved slightly from FY 2007, but equity, while positive,
continues to erode. All required payments to the University are current.
XIV. Reserves
Amounts in general fund reserve accounts totaled $40.6M at the end of the first
quarter of FY 2009, compared to a target of $43.8M as reflected in Appendix C.
Restricted reserves continue to exceed targets.
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Actual FY 2008 Student Financial Aid expenditures came in under the projection
leaving a positive ending reserve balance of $2.8M in the Student Financial Aid
Reserve.
XV.
Systems
Major Systems Installations – In September 2005, the OSU Board of Trustees
approved moving forward with planning and design of a new Student Information
System utilizing the PeopleSoft Student Administration Modules. This project is
expected to cost between $40 and $50M over a five-year period, with a phased
implementation beginning in Summer 2008 and extending through Summer 2009.
The first two phases of the project have been completed with the Undergraduate
and Graduate admissions modules currently in production. Three phases remain
with the last modules in production in summer 2009. The project remains on budget
and on schedule. Overall status is being shown as yellow because there is still a
significant amount of work to be done and a number of unknowns remain, which is
not unusual for a project of this nature.
In addition to the focus on module implementation, the project team is also working
to define the on-going production support environment as well as integrating the
new system into the existing Enterprise System Governance structure.
XVI.
Financial Performance Goals
A.
The table found in Appendix E outlines the Board of Trustees approved
financial goals, targets and FY 2008 actual performance.
B.
The SB 6 score went down this year due to a decline in the net income ratio
and is below the target of 3.6 established by the Board. This decline relates
almost entirely to investment results. The university went from net investment
income of $430M in FY 2007 to a net investment loss of $142M in FY 2008.
The other ratios in the SB 6 score (Primary Reserve and Viability ratios) were
relatively stable. However, the score of 3.4 still exceeds the 1.8 target
established by the State of Ohio.
C.
The Debt Service Coverage ratio (a measure of end of year all-funds operating
surplus/deficit to debt service) fell from 6.3x in FY 2007 to .7x in FY 2008,
below our target goal of 3.6x. This is primarily the result of the swing from
positive to negative in the investment return FY 2007 to FY 2008. While the
change in this indicator is a reason for concern, the rating agencies tend to
focus more on trends than a one year trend. We will continue to monitor.
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XVII. What Happens Next?
A.
No specific Board action is requested at this time.
B.
Mid-year report will be presented in February and will include progress reports
on key areas.
C.
Work will continue on other areas of concern, including:
1. Continued and careful monitoring of the global, national and state
economies
2. Long term capital and financial planning for OSUMC
3. Addressing fund-raising goals in capital projects completed or under
construction
4. Capital Campaign planning
5. Deficit reduction plans at the unit level
6. Enterprise-wide risk management
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XVIII. Summary and Conclusion
A. This report reflects the changing nature of the University’s financial structure.
B. The state of the global, national and state economy remains a major
concern, due to the potential impact further declines or an extended
recession may have on the University’s financial health.
C. The Ohio State University Health System remains financially stable.
D. Enrollments on the Columbus Campus are slightly above planned levels.
E. State budget stability for FY 2009 remains a major concern. Tax revenues
will continue to be monitored given worries about the overall behavior of the
economy.
F. Indirect cost recoveries are running above last year’s activity, exceeding
college projections. New awards are down in comparison to the first quarter
of FY 08. It is too early to draw any conclusions at this point on the impact for
the rest of the years.
G. Private giving is meeting expectations except in five capital projects where
fund-raising shortfalls remain. The fund-raising for the Thompson Library is
complete with the help of the Athletics Department.
H. As the University endowment diversifies its investments, overall risk of the
portfolio should decline. However, the Chief Investment Officer will need to
continue to strengthen processes and policies to manage the risks
associated with alternative investments.
I. Other areas of Columbus Campus finances are meeting expectations. Major
auxiliaries did well last year and expect to do well this year.
J. Bonded debt remains within guidelines.
K. Regional campus finances are stable but enrollment related issues continue
to be monitored at ATI. Hawks Nest is stable and showing a net income.
L. No immediate Board action is requested. Next update will be the Mid-year
Report.
M. Additional information is provided in the appendices regarding development
efforts, targeted reserves, year-end deficits, LOCs and financial goals.
14
Appendix A
FY08 Status of Development Efforts for Projects with a significant
Development Funding Component
Development
Funds Required
(Millions)
Total
thru FY07
(Millions)
Total
in FY08
(Millions)
Total
thru FY08
(Millions)
Remaining
Balance
(Millions)
Comments
Biomedical
Research Tower
$25.0
$7.6
$0.1
$7.7
$17.3
Note 1
Jennings Hall
Renovation
$5.0
$4.0
$0.1
$4.1
$0.9
Knowlton School of
Architecture
$20.0
$18.4
$0.3
$18.7
$1.3
Mech. Engineering
Replacement
$22.0
$16.2
$0.4
$16.6
$5.4
Page Hall
Renovation
$5.0
$1.6
$0.05
$1.65
$3.35
Thompson
Library Renovation
$30.0
$23.8
$6.2
$30
$0
Project
Note 1
The funding of the remaining balance for this project is under review with the Medical Center and
the Office of Development in conjunction with the development of the fund-raising plan for the
Medical Center Master Facility Plan.
Note 2
Total includes $19M in private gifts, $9M transfer from Athletics, and $2M from University funds.
The information for this chart was received from University Development
15
Note 2
Appendix B
To:
Lee Walker
From:
Stephen Finn
Date:
October 14, 2008
Re:
FY08 Deficit Report
This memorandum details the status of structural deficits, exceeding $100,000 and not
under formal LOC agreements, within colleges and academic support areas as of June
30, 2008. The report is divided into four sections:
1)
Review of Deficits Identified Prior to FY08
2)
Deficits Identified During FY 08
3)
Overall Summary of Deficits
4)
Summary of All Deficits—Attachment A
REVIEW OF DEFICITS IDENTIFIED PRIOR TO FY 2008
On June 30, 2008, deficits identified prior to FY 08 decreased by $10M to $25.5M.
During FY08, eight deficits totaling $4.0M were resolved.
DEFICITS IDENTIFIED DURING FY 2008
During FY ’08 new deficits totaling $27.4M developed in twenty-seven areas. Four of
these exceed $.5M and account for $22.3M or 81% of the total; they are: MAPS
($17.2M), Engineering Operations ($3.9M), Vet Hospital Clinic ($.66) and Civil
Engineering Fee Auth. ($.55).
OVERALL SUMMARY
As of June 30, 2008, there were sixty-one funds with reportable deficits totaling $53M.
Three areas account for deficits totaling $46.2M, or 87% of the total; they are: MAPS
($23.3M), COMPH/Health System ($13.7), and College of Engineering ($9.3M).
Following is a summary of liabilities by college and support units:
Area
MAPS
COMPH & Health System
College of Eng
B&F
College of Eng/Research
Vet Clinic
Bio Science
Pharmacy
Education & Human
Ecology
Total:
16
Total Deficit
23,313,049
13,698,796
9,280,268
3,057,775
2,267,172
666,602
415,394
189,431
110,612
$52,999,099
Attachment A (page 1 of 2)
Deficits Identified Prior to FY 08
College of Pharmacy -- Clinic
OSUP (Health Sci.)
Ophthal Enrich. (COM)
Heart & Lung Research Institute (COM)
Pharmacy Advancement (Phar)
Endocrinology (COM)
Infectious Diseases (COM)
Geriatrics Sr Housing (Health Sci.)
MVIMG General Funds (COM)
Pulmonary/Crit Care (COM)
Otolaryngology Excell-ENT (COM)
Otolaryngology Enrichment
Physics (MAPS)
Physics -- Equip. Matching (MAPS)
Mathematics (MAPS)
Statistics (MAPS)
Nanotech West Lab (Engr/Research)
Misc. University Property (B&F)
LBT Project (MAPS)
SES--Panero
Earth Sciences--Grottoli (MAPS)
Math Computer Support (MAPS)
Phys CMX--Poirier Support (MAPS)
Knowlton School of Architecture (Engr)
Areospace Engineering (Engr)
Civil, Envir & Geod Sci (Engr)
Renovation Projects (MAPS)
Earth Sciences (MAPS)
Statistics Consulting Services (MAPS)
LBT Rigid Secondary (MAPS)
Liguid Gas Facility (MAPS)
Phys Condensed Matter Theory (MAPS)
OES Geodynamics - Discretionary
(MAPS)
Ohio Em Scholar - Ind Micr (Bio Sci)
Academic Flight Lab (Engr)
Nanoscale Patterning (Engr)
CAR Personnel Fund (Engr)
Mechanical Engineering (Engr)
MicroMD Operations (Engr/Research)
Sub-total
Sub-total Deficits Indentifed in FY08
Total Outstanding Deficits
(1)
(2)
FY07
Deficit
$104,967
$516,026
$151,379
$8,249,472
$120,768
$1,373,189
$794,762
$133,000
$139,764
$845,589
$496,580
$343,925
$2,111,200
$238,759
$553,338
$335,056
$5,167,124
$3,175,010
$1,355,259
$255,787
$339,149
$131,259
$380,562
$1,449,471
$380,616
$447,832
$485,051
$544,693
$340,688
$261,129
$276,396
$935,698
$218,989
$140,095
$657,519
$131,192
$286,253
$469,885
$1,168,468
$35,505,899
FY08
Deficit
$0
$114,413
$7,332,744
$0
$1,428,347
$0
$0
$445,875
$0
$496,580
$1,237,691
$2,645,964
$315,024
$686,584
$125,787
$1,499,734
$3,057,775
$0
$0
$0
$0
$0
$1,526,084
$352,617
$0
$358,457
$413,388
$114,153
$417,538
$201,526
$0
$224,284
$104,668
$746,959
$268,533
$316,585
$346,949
$767,438
$25,545,697
$27,453,402
Comments
Resolved
Resolved
Within plan
Within plan; see footnote 1
Resolved
Not within plan;
Resolved
Resolved
Not within plan;
Resolved
Awaiting potential litigation
Awaiting potential litigation
Plan to eliminate deficit by FY14 being reviewed by OAA
Plan to eliminate deficit by FY14 being reviewed by OAA
Plan to eliminate deficit by FY14 being reviewed by OAA
Plan to eliminate deficit by FY14 being reviewed by OAA
Ahead of plan
Plan is being finalized
See footnote 2
See footnote 2
See footnote 2
See footnote 2
See footnote 2
Plan accepted. Reduce deficit $300K/year
Plan accepted. Eliminate deficit by FY13
Resolved
Plan to eliminate deficit by FY14 being reviewed by OAA
Plan to eliminate deficit by FY14 being reviewed by OAA
Plan to eliminate deficit by FY14 being reviewed by OAA
Plan accepted; income from LBT Partners
Plan to eliminate deficit by FY14 being reviewed by OAA
Resolved
Plan under review
Plan accepted. Eliminate deficit by FY13
Plan accepted. Eliminate deficit by FY13
Plan accepted. Eliminate deficit by FY13
Plan being finalized
Deficit will be eliminated in FY09
Within plan
$52,999,099
These numbers in the aggregate are within plan for the Heart & Lung Research Institute business plan which is made up of 14 funds, including
some that had positive balances as of 6/30/08 and some that had negative balances. The total cash balance decreased in just those specific
funds with deficits of $100,000 or from ($8,249,472) on 6/30/07 to ($12,344,237) on 6/30/08. The COM has set aside sufficient funds to eliminate
this deficit as a part of the recruitment of a new Director for the program.
Deficits resulting from unmet commitments made by previous administration; these unfunded commitments have been trasferred to Math. & Phys.
Sci Admin. and are reflected in the $17M deficit shown above for FY08.
17
Attachment A (Page 2 of 2)
Deficits Identified in FY 08
FY08
Deficit
Math & Physical Sci Admin (MAPS)
$17,154,829
Chemistry Fee Auths (MAPS)
Physics CMX-Johnson-Halperin
(MAPS)
$171,957
Stats Admin-SCS (MAPS)
Weinstein Research (Bio Sci)
Em Scholar - Mol Gen (Bio Sci)
Weinland Day Care (CEHE)
Freshman Engineering Programs
(Engr)
Admin and Planning (Engr)
Engineering Operations (Engr)
Academic Flight Lab (Engr)
Civil Engineering (Engr)
Civil Engineering Fee Auths (Engr)
Engineering Administration (Engr)
NSEC Cost Share (Engr)
Pharmacy GF Spec Allocs
Vet Hosp Clinical Services
College Recruiting (COM)
Neurology Dept Budgets (COM)
Pharmacology Dept Budgets (COM)
Mol & Cell Biochem Dept Budgs
(COM)
Mol & Cell Biochem Rel Time (COM)
Anesthesiology Chair Res Supp
(COM)
General Medicine Discretionary
(COM)
PACCS Faculty Startup (COM)
Vestibular Research Fund (COM)
Phys Med Enrichment (COM)
Sub-total
$150,970
$119,260
$191,466
$110,612
$332,588
$206,474
$161,747
$3,948,240
$221,496
$122,738
$553,937
$138,599
$369,310
$189,431
$666,602
$286,753
$132,708
$396,976
Comments
Plan to eliminate deficit by FY 2014 being reviewed by
OAA.
Plan to eliminate deficit by FY 2014 being reviewed by
OAA.
Plan to eliminate deficit by FY 2014 being reviewed by
OAA.
Plan to eliminate deficit by FY 2014 being reviewed by
OAA.
Plan in place to eliminate deficit by FY 2013.
Plan in place to eliminate deficit by FY 2013.
Plan to be formulated.
Plan in place to eliminate deficit in FY 2009.
Plan in place.
Plan being developed.
Flight lab taken over by airport; beginning to show profit.
Plan being finalized.
Plan being finalized.
Plan being developed.
Plan being developed.
Plan submitted
Plan submitted
Plan submitted
Plan will be developed
Plan submitted
$150,020
$371,643
Plan submitted
Plan submitted
$202,949
Plan submitted
$240,842
$498,022
$102,629
$260,604
$27,453,402
Plan being finalized
Plan being finalized
Awaiting potential litigation
Plan will be developed
18
Appendix C
Status of Specialized Reserve Accounts
September 30, 2008
This table summarizes the status of various specialized reserve accounts.
Amounts available are below targets in some cases due to the financial stress of
the last several years. The goal is to bring all reserves up to target levels within
the next 1-2 years. In the interim, the $13.5M Rainy Day Fund and other cash
balances will serve as an additional back up, if needed.
Account
General Fund Reserves
Enrollment
Reserve/College
Stabilization
Utility Reserve
Financial Aid Reserve
Legal Reserve
Property and Liability
Insurance Reserve
Rainy Day Fund
General Fund Totals
Restricted Reserves
Malpractice Insurance
Reserve
Sep 08
Amount
(in millions)
Target
Amount
(in millions)
$6.0
$7.4
1% of annual tuition and
IDC’s
12.6
2.8.
0.9
14.6
3.9
1.0
15% of annual expense
5% of annual expense
$1M
5.8
5.0
13.5
11.9
$40.6
$43.8
155.4
122.0
Actuarially determined
One Month of total
claims and admin costs
Health Benefits Reserve
45.5
28.3
Debt Service Reserve
63.6
48.4
$264.5
$198.7
$305.1
$242.5
Restricted Reserves Total
Grand Total
Target Description
19
Size of deductible
1% of University’s
annual general funds
revenue
One year’s principal
payment on all general
receipt bonds
Appendix D
Status of University Lines of Credit
The Ohio State University Board of Trustees
Fiscal Affairs Committee
November 6, 2008
Topic: University Lines of Credit
Context:
Board of Trustee approved guidelines for the issuance of University lines of credit
(LOC) require and annual report on “approved lines of credit and their
disposition.”
Summary:
The University has 25 lines of credit with an outstanding balance of $92M with all
LOCs in compliance. During FY08, five lines of credit were paid off, and six new
LOCs were established. During the past year, the total outstanding balance has
increased by $1.5M.
Lines of credit do not directly affect debt capacity, but they can have an impact
on net cash available and can reduce the amount of uncommitted funds
available.
See Attachment A for details.
20
Attachment A
University Lines of Credit
as of October 1, 2008
Academic Support Units
Athletic Dept--WHAC Renovation
WOSU-Building Renovation
WOSU-Digital Conversion
Gateway Build-Out
Capital Projects Closeout LOC
College of Biological Sciences--Jennings Renovation
Colleges
College of Engineering: University Airport--ONG
Ramp(1)
College of Pharmacy: Non-Traditional PharmD
Program
College of Engineering--Eminent Scholars (2)
Fisher College of Business
Weinland Park Child Care #1
Weinland Park Child Care #2
Sub-Total:
COM & Health System
COM-Surgery Tail Loan #1
COM-Obstetrics & Gynecology Tail Loan
Pulmonary Loan (Formalized Dec. 2004)
COM-650 Ackerman Renovation
COM- Otolaryngology
Sub-Total:
Affilated Entities
SciTech
Campus Partners
Sub-Total:
Lines of Credit Established since Nov. 2007
COM-Dept. of Ophthalmology(3)
UMC-Partners
College of Pharmacy
Faculty Club
Legal Affairs--Gateway Buildout
Engineering--Scott Lab
Sub-Total
Current Total:
Date
Signed
Amortization
Date
Amount
Authorized
Outstanding
Balance*
Jan-04
Nov-04
Nov-04
May-06
Nov-06
Nov-06
June--2014
June--2013
June--1013
June--2015
Sept--2011
June--2010
$20,300,000
$1,200,000
$5,000,000
$2,000,000
$3,300,000
$4,000,000
$5,700,000
$905,000
$3,950,000
$700,000
$980,000
$2,610,000
Sep-00
Sept--2010
$1,900,000
$1,300,000
Feb-04
Aug-04
Nov-05
April-06
$378,000
$1,500,000
$12,500,000
$3,600,000
$172,000
$1,500,000
$9,270,000
$2,160,000
April-06
June--2014
June--2013
Nov-2020
June--2011
Junew-2011
$1,500,000
$57,178,000
$975,000
$30,222,000
Jan-04
Feb-04
June-04
Jan-06
June-06
Dec--2013
June--2014
June--2010
June-2012
Dec--2012
$4,800,000
$3,200,000
$3,000,000
$18,000,000
$725,000
$29,725,000
$3,200,000
$820,000
$1,900,000
$11,800,000
$725,000
$18,445,000
Sep-03
Jul-06
N/A
Jul-16
$17,000,000
$25,000,000
$42,000,000
$11,130,000
$19,150,000
$30,280,000
Nov-07
Feb-08
Jul-08
Jul-08
Jul-08
Jul-08
Sept--2013
June--2013
June--2012
Sept--2013
June--2010
June--2015
$1,500,000
$5,700,000
$400,000
$320,000
$57,000
$5,700,000
$13,677,000
$142,580,000
$1,145,000
$5,425,000
$400,000
$320,000
$57,000
$5,700,000
$13,047,000
$91,994,000
* Outstanding principle & interest; all balances rounded
(1) Pending $800,000 from FAA
(2) One LOC paid off; two renegotiated
(3) Incorrectly included in last year's report
Office of Business and Finance
Office of Resource Planning
October 17, 2008
21
Appendix E
Status of Financial Performance Goals
The Ohio State University
Financial Performance Goals
Annual Scorecard
Category
Liquidity
Primary Reserve Ratio
Rainy Day Fund
Operating Margin
General Fund5
Target
Performance
In FY 2007
Performance
In FY 2008
150 Days
145 days
1.1%
1.1%
At least 1%
4.6%
2.8%
At least 1.0X
No greater than 4.0%
At least 3.0X
2.6X
2.2%
6.3X
2.6X
2.1%
0.7X
At least 150 days of
cash4
At least 1% of General
Fund
Debt
Total Financial Resources to Direct Debt6
Actual Debt Service to Operations6
Debt Service Coverage6
SB6 Ratio7
At least 3.6
4.2
3.4
Credit Rating6
At least AA2
AA2
AA2
Health System
Operating EBIDA Margin8
10.0 – 12.5%
12.1%
12.1%
+6.4 days
7.7X
+5.1 days
7.3X
Days of Cash on Hand
Debt Service Coverage
Increase by 3-5 days
annually
At least 4X
4
In this case, cash means expendable net assets. This includes cash, liquid investments and current receivable
minus current payable.
5
The operating margin in FY 2007 was unusually high. Some FY 2007 expenditures were carried over to FY 2008
resulting in a decrease in the operating margin more in line with the recent trend.
6
Moody's definitions. The decrease in debt service coverage is due to unrealized investment losses of the
endowment. The endowment return went from 18% in FY 2007 to -8% in FY 2008.
7
State of Ohio definition
8
EBIDA means earnings before interest, depreciation and amortization.
22