System Finances (Finance 101)
Board of Trustees
October 2014
The Minnesota State Colleges and Universities system is an Equal Opportunity employer and educator.
Agenda
 Introduce board policy framework
 Review major trends
 Provide overview of the system’s operating budget
and capital investment program
2
Board policy framework
3
Board financial responsibilities
 Provide oversight
 Set policy
 Approve certain decisions
4
Decisions requiring board approval
 Revenue and expenditure annual operating budget plans - establishment
of financial management policies including the reserve policy acceptance and release of annual audited financial statements
 Biennial budget requests -tuition and fee rates - optional fee maximums room and board rates - student union facilities fees
 Contracts of three million dollars or more (policy change to $1M pending)
- sale or disposition of real property -retirement program administration
and oversight
 Criteria for multi-year capital budgets -prioritized multi-year capital
investment program -revenue fund debt management and all bond sales
 System information technology long range strategic plan -approval of
finance and IT related policies
5
Financial authorities the board has
delegated to the chancellor
 Procurement and professional/technical contracts over $100,000 less than
$3M (change to $1M under board consideration)
 Master facilities plan for the colleges/universities
 Execution and delivery of all documents regarding the acquisition,
disposal, transfer or leasing of real property after Board approval
 Systemwide reserve and institutional reserves per board policy
 Oversight of college/university financial management
 Naming of buildings, sites and common areas
 Master technology plans for colleges/universities
 Development and management of acceptable use procedure for
information technology related resources and assets
6
Financial authorities the chancellor
has delegated to the presidents
 Administrative and financial management
 Budget monitoring
 Composite financial index oversight
 Purchases and professional/technical contracts Up to $100,000
 Optional fees up to Board-approved maximums
 Individual tuition and fee waivers per policy
 Fundraising for the college/university
 Acceptance of gifts & grants, except for real property
 Leasing real property
 College/university financial reporting
7
Vice chancellor assurance practices
 Annual financial reviews with campus leadership
 Monthly, quarterly and semiannual monitoring reports
 Watch list and work out protocols
 Regional financial and facilities quarterly management
meetings
 Facilities program management reviews
 Strong communication systems
8
Board financial risk management
strategy
 Annual financial statement/audit discipline
 Operating budget reserves maintenance/improvement policy
 Unrestricted net asset improvements
 Composite financial index improvements
 Capital improvements tied to facilities condition index
9
Major trends
10
Revenue drivers
 State economic outlook
 Public support for public higher education
 Tuition rate and competitive environment
 Overall enrollment
 Federal and state financial aid funding policy
11
Cost drivers
 Negotiated contracts (salaries and benefits)
 Enrollments
 Health care costs (employer-paid insurance cost)
 Technology (investments in new technology and
system maintenance)
 Size of campus physical plants, building operations,
maintenance and preservation
12
Primary dynamics
 Enrollment – local management within system strategic
framework
 Tuition and revenue – board establishes rates,
colleges/universities collect and spend
 Financial aid revenue – state and federal program guidelines
 Gifts and fund raising – colleges/universities solicit and spend
 State support – established by legislature, allocated per board
approved method
 Wage and benefit costs – based upon state or board approved
systemwide contracts
13
FYE enrollment grew rapidly but has
fallen since its peak in 2011
170,000
157,903
160,000
153,447
150,000
FYE
144,609
143,924
140,000
130,000
135,494
142,274
135,839
132,586
120,000
110,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
est
est
Fiscal Year
14
Tuition revenue and state support per
FYE remains stable in constant dollars
$11,000
$9,679
$10,000
$9,950
$9,240
$8,811
$9,000
$8,501
$8,000
$7,187
$7,000
$8,917
$7,445
$7,586
$7,187
$7,756
$7,280
$7,091
$6,992
$7,331
$7,388
$6,000
$5,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
est
est
Actual
15
Constant Dollars
State support increasing
Changing relationship between tuition and state support
100%
90%
80%
70%
66.3%
60.1%
55.3%
60%
55.2%
52.6%
58.0%
56.1%
51.4%
50%
44.7%
40%
47.4%
48.6%
44.8%
33.7%
39.9%
42.0%
43.9%
30%
20%
Tuition
Appropriation
10%
0%
2002
16
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 2014 est 2015 est
State support per student FYE has begun to improve in
constant dollars, but is still 32% below 2002 levels
$6,000
$5,000
$4,766
$4,368
$3,994
$4,000
$3,863
$3,924
$3,000
$3,980
$3,715
$3,847
$3,079
$3,261
$3,070
$3,247
$2,787 $2,813
$2,000
$1,000
$2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
est
est
17
Anoka-Ramsey CC
Pine Technical
Lake Superior College
Hennepin Technical
Saint Paul College
Fond du Lac Tribal&CC
Inver Hills CC
Mesabi Range CC
St. Cloud T&CC
Itasca CC
Hibbing CC
Vermillion CC
Rainy River CC
MN State C&TC
Century College
South Central College
Alexandria T&CC
Ridgewater College
Central Lakes College
North Hennepin CC
Northwest Technical
Riverland CC
Northland C&TC
Rochester C&TC
MN West C&TC
MN State -SE Technical
Dakota County TC
Normandale CC
Anoka Technical
Metropolitan State
St. Cloud State
MSU, Mankato
Bemidji State
Winona State
MSU Moorhead
Southwest MN State
U of M Crookston
NW Health Sciences
Martin Luther
U of M Morris
U of M Duluth
U of M Rochester
Rasmussen College
U of M Twin Cities
Walden
Mpls Business College
Capella
Crossroads
Oak Hills
Duluth Business
Argosy, Twin Cities
Globe
MN School of Business
North Central
Concordia, St. Paul
Dunwoody
Institute of Production & Recording
Crown
Art Institutes, MN
Bethany
Northwestern
St. Mary's
St. Scholastica
Bethel
St. Catherine
Mpls Art & Design
Concordia, Moorhead
Augsburg
Hamline
St. Thomas
St. John's
St. Benedict
Gustavus
St. Olaf
Macalaster
Carleton
2013-14 Tuition and Required Fees
Minnesota’s most affordable higher education option
$50,000
Minnesota State
Colleges and Universities
18
$45,000
Most Expensive
$40,000
Private colleges and universities;
University of Minnesota
$35,000
$30,000
$25,000
$20,000
$15,000
Least Expensive
$10,000
$5,000
College/University
Source: Chronicle of Higher Education, October 23, 2013
$0
Tuition & Fees as % of Median Income
Affordability: Tuition & fees as a percent
of median income
40%
33.2%
30%
27.7%
28.0%
28.9%
34.4%
36.9%
35.5%
35.0%
14.3%
14.4%
15.0%
29.1%
20%
10.7% 10.9%
10%
11.6%
12.8%
13.6%
6.4%
6.4%
6.7%
6.8%
7.3%
7.5%
7.7%
7.7%
8.1%
4.9%
4.9%
5.1%
5.1%
5.4%
5.6%
5.7%
5.7%
5.9%
2006
2007
2008
2009
2010
2011
2012
2013
0%
2005
19
11.2%
37.0%
14.8%
8.0%
5.8%
2014
State Colleges
State Universities
University of Minnesota
Private Colleges and Universities
Source: System Office Research – Academic and Student Affairs
Estimated net student tuition cost in fiscal year 2015
2014-2015 tuition rate for full-time students (30 Credits - 15 per term)
minus estimated state and Pell grants
State Universities
State Colleges
Income Levels for State
Grant Recipients
Average 2014-2015
Student Tuition Cost
Income Levels for State
Grant Recipients
Average 2014-2015
Student Tuition Cost
Less than $20,000
$626
Less than $20,000
$801
$20,000 to $39,999
$1,197
$20,000 to $39,999
$1,254
$40,000 to $59,999
$2,062
$40,000 to $59,999
$2,671
$60,000 and above
$3,134
$60,000 and above
$4,419
Average for all
state grant recipients
$1,247
Average for all
state grant recipients
$2,022
Non-state grant recipients
$4,816
Non-state grant recipients
$6,782
20
Inflation adjusted expenses per FYE
remain below pre-recession levels
$12,000
$11,000
$10,277
$10,249
$9,967
$10,000
$9,719
$10,052
$10,145
$10,313
$9,599
$9,582
$9,442
$9,325
$8,981
$9,000
$8,000
$7,000
$6,000
FY2002
21
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
Institutional support expenses per FYE
$1,700
$1,600
$1,500
$1,455
$1,400
$1,398
$1,456
$1,436
$1,417
$1,381
$1,357
$1,342
$1,327
$1,300
$1,259
$1,200
$1,100
$1,000
FY2008
FY2009
FY2010
Actual
22
FY2011
Adjusted for inflation
FY2012
FY2013
Reduction in the size of the system
office
$45
3.8%
3.7%
43.5
3.6%
$43
3.6%
$41
41.0
3.4%
40.5
39.4
Appropriation in Millions
$39
3.2%
38.8
3.2%
3.1%
$37
36.7
39.8
39.0
3.2%
3.1%
36.7
37.1
3.0%
3.0%
$35
2.9%
2.8%
33.1
$33
33.1
2.6%
2.6%
$31
2.4%
$29
2.3%
2.3%
2.2%
2.2%
$27
$25
2.0%
FY2002
FY2003
FY2004
FY2005
FY2006
System Office Appropriation
23
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
System Office Percentage of Systemwide GEN Revenue
FY2013
Institutional spending restraint
continues
 System ranks 38th out of 51 in institutional spending
per FYE
 Rankings have averaged 37th-40th last four years
 Spending is 15% below the national average per FYE
 Spending levels per FYE are below all contiguous
neighbors (Iowa, WI, North Dakota, South Dakota)
24
Operating budget
25
Revenue Trends
Percent Share of Revenue
General Fund
FY2009 - FY2013
(nominal dollars)
70%
60%
50%
40%
30%
20%
10%
0%
State Appropriation
Tuition (Gross)
FY2009
26
FY2013
Total Change
Expense Trends
General fund expenses FY2009 vs FY2013
(nominal dollars)
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Salaries & Benefits
Operating Expenses
FY2009
27
FY2013
Change
FY 2016-17 financial outlook
 Improved, but risk of softening state funding
environment
 Continued commitment to affordable tuition
 Uncertain enrollment outlook
 Contract settlements known
28
Pressures from all sides
Investment requirements for quality academic and student
support are pressured by:
 Affordability commitment holding down tuition revenue
 Enrollment growth strategies needed to best serve the state
 State investment levels up slightly after years of sharp decline
 Capital investment requirements (buildings and technology)
competing for campus operating funds
 Accreditation agencies and Board of Trustees increasing focus
on financial sustainability of colleges and universities
increasing pressure for net asset and operating margin
improvements
29
FY2014-2015 all-funds budget
($ in millions)
FY2014
Budget
FY2015
Budget
Dollar
Change
Percent
Change
Revenues
$1,919.9
$1,924.7
$4.8
0.3%
Expenses
$1,907.3
$1,919.9
$12.6
0.7%
$12.6
$ 4.8
Budget balance
30
General fund budget
($ in millions)
Revenues
State appropriation
Tuition
Other revenues
Programmed fund balance
Total budgeted revenues
Expenses
Compensation
Other operating costs
Budget balance
31
FY2014
Budget
FY2015
Budget
Dollar
Change
Percent
Change
$587.9
$811.8
$113.4
$622.1
$793.5
$104.8
$34.2
($18.3)
($8.6)
5.8%
-2.3%
-7.6%
$14.9
$1,528.0
$15.0
$1,535.4
$0.1
$7.4
0.3%
0.5%
$1,139.9
$379.4
$1,519.3
$1,156.7
$376.5
$1,533.2
$16.8
($2.9)
$13.9
1.5%
-0.8%
0.9%
$8.7
$2.2
Composite financial index
Trends for college and universities
18
16
Number of Institutions
14
12
10
2011
8
2012
2013
6
4
2
< 1.00
1.00 - 3.00
3.00 - 5.00
Composite Financial Index
5.00 - 7.00
State of Minnesota
General Fund Expenditures FY2014-2015 Biennium
$39.6 Billion Total
Health & Human
Services
29%
K-12 Education
42%
All Other
Expenses
9%
Property Tax Aids &
Credits
8%
Higher Education
7%
Public Safety &
Judiciary
5%
33
Higher Education State Funding FY2014-2015 Biennium
$2.8 Billion Total
Office of Higher
Education
16%
MN State Colleges &
Universities
43%
University of
Minnesota
41%
34
Minnesota State Colleges and Universities
FY2013 General Fund– Revenues
$1,509 Million Total
Other
$91
6%
State Appropriation
$553
37%
Tuition
$865
57%
Source: FY2013 Audited Financial Statements
35
Allocation process
36
Revenue practices
 All tuition and fee revenue is collected and retained
by the colleges and universities. These funds are not
centrally redistributed
 All grants and gifts controlled by the colleges and
universities
 All auxiliary income controlled by the colleges and
universities
 All state funds appropriated to the Board and
distributed to the colleges and universities in a lump
sum
37
State support allocation
 Institutional allocations: priority funds and
institutional base allocations
 Systemwide set asides: enterprise technology, debt
service (system share), attorney general, etc.
 System office support
38
“Allocation Framework” provides a method for
distributing state funds to colleges and universities
 A single model that equitably recognizes the diversity of
Minnesota State College and University students' needs and
supports the unique educational goals of each institution.
 Allocation of funds are based on a number of factors such as
enrollment, cost of instruction, national benchmark data, and
other institutional data.
 Allocation framework distributed $461M in FY2015
 Framework changes now under study by the Charting the
Future implementation team on system incentives and
rewards
39
Allocation framework design
Instruction (56%)
Student Support and
Administrative Services (30%)
Facilities (8%)
Library (4%)
Research and Public Service (2%)
40
Allocation framework design principles
 Methodology used to distribute base funds to
colleges and universities:
Rewards cost efficient instruction
State funds follow enrollment changes
Substantially formulaic
 CTF work asking:
 What does it incent and reward now?
 What should it incent and reward?
41
Capital investment
42
Capital financing
 Campus resources from operating budget or gifts
 General obligation bonds sold by the state to finance
new construction, renovation or demolition of
academic and program space to improve learning
 Revenue bonds sold by the Board to finance revenue
producing facilities such as dormitories, dining halls,
student unions, etc.
43
Net assets by fund type
FY2013
(in millions)
Other
$143
7%
44
General
$1,722
83%
Revenue
$218
10%
Total capital investment - bonds
(FY2000-2014)
$300
$250
Millions
$200
$150
$100
$50
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Capital Projects
45
HEAPR
Revenue Fund
GO debt service as percent of total expenses
While continuing to invest in infrastructure, debt service has
remained a fraction of overall MnSCU expenses
$2,000
$1,800
Millions (nominal dollars)
$1,600
$1,400
1.3%
1.2%
1.5%
1.1%
1.5%
1.4%
1.3%
1.1%
1.0%
$1,200
$1,000
$800
$600
$400
$200
$FY2005
FY2006
FY2007
FY2008
FY2009
Expenditures and Prinicipal
46
FY2010
Total G.O. Debt
FY2011
FY2012
FY2013
Summary
 Affordability commitment
 Enrollment growth strategies
 Capital budget development underway – spring 2015
approval
 Operating budget development underway - spring
2015 approval
 FY2014 audit underway – November 2014
presentation
47
End deck
48