Transcript FY 2011 Assessment of Financial Strength

FY 2011
Assessment of Financial Strength
Arizona Board of Regents
Enterprise Initiatives, Finance and Strategic
Planning Committee
December 1, 2011
Finance Committee
Item #1
December 1, 2011
Summary of FY 2010-11 Fiscal Performance
• Enrollments continue to be strong
– Freshmen
– Community College Transfers
– Increase in Retention
• Balance Sheets improved at all three institutions
– Increase in Net Assets
– Balance sheet liquidity at ASU & UA remains thin
• E & G Revenue and Expense Trends
– 2011 compared to 2010 – increases in total expenditures,
and expenses per FTE
– Continued to show productivity gains from 2008
• The percentage of state support to total revenue continued to
decline
University Annual Financial
Statements – Net Assets
SCHEDULE OF TOTAL NET ASSETS (in millions)
ASU
NAU
UA
SYSTEM TOTAL
FY 2010
$ 1,036.8
$ 368.8
$ 973.6
$ 2,379.2
FY 2011
$ 1,130.4
$ 417.9
$ 1,069.1
$ 2,617.4
Change
$ 93.6
$ 49.1
$ 95.5
$ 238.2
% Change
9%
13%
10%
10%
• All three universities experienced positive
growth in their net assets
Drivers of Increases in Net Assets
• Reducing Costs and Restructuring
• Accelerated growth in tuition and fees and
research revenue
• Improved financial markets – increase in
investment income
Education & General Revenue and Expense Trends
• Total revenues and expenditures (net of scholarship expenses)
both increased in FY 2011
– Total system revenues increased by $104M or 5.2%
– Total system expenditures increased by $132M or 6.9%
– Enrollment growth – 5,210 FTE or 4.2%
• FY 2011 vs. FY 2008
–
–
–
–
Revenues increased $196M or 9.8%
Expenses increased $113M or 5.9%
Enrollment growth – 16,708 or 14.7%
FTE Basis
• Revenues decreased $(640) per student or (3.8%)
• Expenses decreased $(1,327) per student or (7.8%)
• Scholarship expenses continue to increase
Composition of the University’s Revenue
FY 2011 RATIOS
ASU
NAU
UA
23%
30%
20%
1. Ratio of State General Fund Appropriations to
Total Revenue
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
ASU
NAU
UA
Composition of the University’s Revenue
FY 2011 RATIOS
ASU
NAU
UA
38%
32%
23%
2. Ratio of Net Tuition and Fees Revenue to
Total Revenue
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
ASU
NAU
UA
Composition of the University’s Revenue
FY 2011 RATIOS
ASU
NAU
UA
26%
23%
41%
3. Ratio of Gifts, Grants, Contracts, and TRIF Revenue to Total Revenue
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
ASU
NAU
UA
UNIVERSITY STATE GENERAL FUND APPROPRIATIONS AND
NET TUITION AND FEE REVENUES
AS A PERCENT OF UNIVERSITY TOTAL REVENUES
FY 2002 - FY 2011
40.0%
36.4%
35.0%
30.6%
30.0%
GF as % of Total Revenue
T&F as % of Total Revenue
25.0%
22.5%
20.0%
18.1%
15.0%
10.0%
FY 2002
2003
2004
2005
2006
2007
2008
2009
2010
FY 2011
Ratios to Measure Financial Strength
of the Balance Sheet
• Ratios 7 & 8 measure flexibility
• Ratio 9 measures debt service
• Ratios 7, 8 & 9 are key ratios used by rating
agencies to determine bond ratings
Rating Agencies
• Independent fiscal analysis of universities
• Impact ability to borrow and levels of debt service
• 5 Factors in Determining Rating Assessment
–
–
–
–
–
Market Position
Operating Performance
Balance Sheet and Capital Investment
Governance and Management
Legal Security and Debt Structure
University Bond Ratings
ASU
NAU
UA
SPEED Revenue Bonds
A1
A2
Aa3
System Revenue Bonds
Aa3
A1
Aa2
Stable
Stable
Negative
SPEED Revenue Bonds
AA-
A
AA-
System Revenue Bonds
AA
A+
AA-
Negative
Stable
Stable
Moody's
Outlook
S&P
Outlook
Reasons for Negative Outlook
• Ongoing reductions in State Appropriations
• Political and market pressure to limit tuition
increases
• Thin unrestricted liquidity to cover expenses
What Could Move the Rating Up
• Significant growth of liquid financial resources
• Stabilization of state funding
• Improved credit profile of the state
What Could Move the Rating Down
• Declines in unrestricted liquidity and/or further
deterioration of financial strength ratios
• Inability to manage through a challenging state
funding environment
• Additional borrowing without commensurate growth
of financial resources and revenues to pay debt
service
• Deterioration of the credit quality of the State
Reserve Policy
• Requested by Board
• CFO’s examining options
• Liquidity
– ASU has a ratio of 22.3%, or less than 12 weeks of liquid
assets to cover expenses
– UA has a ratio of 18.8%, or approximately 10 weeks of
liquid assets to cover expenses
– NAU has a healthy liquidity ratio of 44.8% or approximately
23 weeks of liquid assets to cover expenses
• Delicate Balance