financial review - insideewu · financial reporting fy2013 financial report . communication ....

Financial Review

FISCAL YEAR 2013

Overview

Resource Sufficiency & Flexibility

Operating Results

Financial Asset Performance

Debt Management

Financial Outlook

AGENDA

2 17-Jan-14

•Access •Retention •Degree completion •Graduation rates

STUDENTS

•High quality •Program array •Size of the University •Enrollment levels

Academic Programs

•University Strategic Plan •Ability to respond to changing environment •Enrollment Management Plan •Revenue opportunities •Campus Master Plan

Strategic Plan

•EWU expands opportunities for personal transformation through excellence in learning.

•EWU envisions a future of professionally, socially and culturally enriched leaders, citizens, and communities.

Mission and Vision

•Campus investments •Use of debt capacity •Financial flexibility • Informed decision making

Sound Financial Position

Achieving the Goals of the EWU Board of Trustees

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Impacts to Eastern’s Financial Position

Finances

Enrollment Demand

Tuition

State Resources

Capital Planning Auxiliaries

Financial Aid

Strategic Investments

Debt

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Retrospective

• EWU has successfully navigated through the economic downturn to retain a sound financial position

• State funding for operational budget continues to be constrained, yet began to grow in 2013-15

• Enrollment growth and tuition and fee increases partially offset previous state funding reductions

• Enrollment: focus on market position, demand, capacity. Historical strong demand yet demographics indicate current market sector will slow.

• Declining state investment in deferred maintenance and capital funding presents a major issue for the future.

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6

Stable Financial Position enables Growth.

Financial Performance

meets or exceeds industry

measures.

Solid position enables investment

planning and resource

management to meet future budget

challenges.

Financial Position impacted by 2013-15, and future, budget

decisions.

Preserving and advancing Eastern’s institutional

strength and security is a Board of Trustees priority

A stable financial position is a critical element in support

of developing goals, strategies, and actions for

Eastern to meet the challenges of the future

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7

Financial Reporting

FY2013 Financial Report

Communication

Compliance

Evaluation

• Communicating information about the university’s resources and obligations is the primary goal of financial reporting

• Demonstrates an organization is fiscally sustainable

• Public higher education comprehensive financial reports are in compliance with generally accepted accounting principles and utilize the reporting format prescribed by GASB (Government Accounting Standards Board) • Public disclosure required per bond covenants.

• For evaluative purposes across an industry, financial statements must conform to stated principles for recording revenues, expenses, assets and liabilities

• Financial statements are used in the bond rating process by rating agency for current and future issues

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Measuring Financial Health

8

•Return on Net Assets Ratio

•Viability Ratio

•Net Operating Ratio

•Primary Reserve Ratio

Resource Sufficiency &

Flexibility Operating Results

Financial Asset

Performance Debt

Management

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• Return on Net Assets Ratio

• Viability Ratio

• Net Operating Ratio

• Primary Reserve Ratio



Financial Asset

Performance Debt

Management

Key Financial Performance Measures

Primary Reserve Ratio Measures the financial strength of the institution by comparing expendable net position to total expenses. (Are resources sufficient and flexible enough to support the mission?)

Net Operating Ratio Indicates surplus or deficit from operating activities. (Do operating results indicate the institution is living within available resources?)

Return on Net Assets Ratio

Determines whether the institution is financially better off than in previous years by measuring total economic return. (Does financial asset performance support the strategic mission?)

Viability Ratio Measures the availability of Unrestricted Net Position to cover debt obligations at the balance sheet date. (Is debt managed strategically to advance the mission?)

9 17-Jan-14

RESOURCE SUFFICIENCY AND FLEXIBILITY

10

Resource Sufficiency & Flexibility

Operating Results

Financial Asset

Performance Debt

Management

Planning

State Funding and Tuition

Enrollment

Financial Aid

To support the University’s mission

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FINANCIAL PLANNING

11

Planning for Resource Sufficiency and Flexibility

Biennial Budget Process Long Term Planning

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Budget Process Relationship to Financial Reporting

12

• 2 year budget with internal planning for future biennia

• Multi-year enrollment planning

• Revenue forecast and projections

• Future cost impacts • Analysis of reserves • Strategies for revenues

and funding • Link to Strategic Plan

Budget and Planning Process

• Monthly- various financial reports are produced

• Variance reporting • Benchmarking and

industry level Analysis • Audited annual financial

statements • Audited fund level

financial statements for selected funds.

Financial Reporting

On-going analysis of spend rate and cash balances Interim reporting Budget vs. Actual Revenues and Expenses Ongoing enrollment review Financial Aid review Capital Projects

Financial Management

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13

Key Funding Sources State Funds and Student Tuition

$20

$30

$40

$50

$60

$70

2007 2008 2009 2010 2011 2012 2013 2014

Mill

ions

State Funding Student Tuition

62%

38%

62%

38%

Source: BOT operating budget document

Over last 5 years, the state funding/student tuition balance in operating budget funding sources has shifted completely.

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GF-State Funding per FTE Student

$6,4

47

$6,1

19

$5,6

93

$4,9

37

$3,9

26

$3,8

70

$4,5

18

$6,3

59

$6,0

48

$5,0

79

$4,4

68

$3,4

55

$3,3

19

$3,8

42

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

2008 2009 2010 2011 2012 2013 2014*

Funding per Budgeted FTEFunding per Actual FTE

14

EWU’s GF-State funding per OFM Budgeted FTE declined by 67% ($2,577)between FY2008 and FY2013, and increased 17% ($648) in FY2014.

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Source: Data based on GFS allocations and OFM budgeted state enrollments. 2014 projections based on original budget. Actual FTE funding based on GFS allocations and Annual Average state enrollments. 2014 projections based on original budget FTE at 10,272.

EWU’s Share of Total State GF

0.33% 0.33% 0.35%

0.28%

0.22% 0.24%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

2003-05 2005-07 2007-09 2009-11 2011-13 2013-15

EWU % Share of Total State Budget

45.53%

35.64% 6.19%

9.18%

1.52%

1.04%

0.31% 0.24%

0.23% 0.12% 3.46%

Total 2013-15 Budget

Public Schools Human Services

Spec'l Approp. Other Agencies

UW WSU

WWU EWU

CWU TESC

4-Year HE

4-Year Higher Education

15

Source: fiscal.wa.gov - Operating Budget Statewide Summary

4-Year HE Share

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EWU

19.9% 22.3% 23.4% 27.0% 26.4%

15.4% 17.2% 19.4% 16.9% 17.4%

23.6% 21.5% 15.3% 14.9% 16.1%

15.9% 15.5% 14.8% 16.0% 16.1%

12.7% 13.2% 14.0% 15.3% 16.5%

8.2% 7.3% 6.9% 5.1% 4.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Fund Balance (149)*

Recharges*

Service Funds*

Sponsored Programs

Scholarships &Fellowships

Auxiliary Enterprises

State Funds

Dedicated LocalFunds

Tuition

16

Institutional Annual Operating Budget History Expenditures

$204.7 $207.7 $224.5 $227.2

Source: BOT operating budget document

$245.4

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17

Critical planning component underpinning resource sufficiency and flexibility.

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ENROLLMENT REVIEW

Total Academic Year Enrollments State and Self-Support (HC)

9239 8968 9131 9558 9836 10204 10517

1300 1199 1248 1279 1171 1162 1160 10539 10167 10379 10837 11007 11366 11677

0

2000

4000

6000

8000

10000

12000

14000

2007 2008 2009 2010 2011 2012 2013

GraduateHeadcountUndergraduateHeadcountTotal

18

Eastern’s enrollments continue to grow. Future enrollment goals will consider access, capacity, and fiscal balance within the context of the strategic plan.

Source: EWU Institutional Research

17-Jan-14

Headcount Enrollment* Budget to Actual

9123

9467

9645

9887

1012

0

9292

9501

9650

9925

1018

4

0

2000

4000

6000

8000

10000

12000

2009 2010 2011 2012 2013

BudgetActual

19

*Institution budgeted level

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20

FINANCIAL AID FY2013

Affordability and access to higher education largely relies on ability to offer necessary levels and types of financial aid

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Financial Aid – By Source

2010 2011 2012 2013Federal $74.6 $84.6 $91.0 $91.3EWU $11.2 $13.3 $14.3 $16.9State $13.0 $13.3 $14.9 $17.5Private $4.4 $4.5 $5.3 $5.9Other $1.7 $1.5 $1.0 $1.4EWU Foundation $0.60 $0.63 $0.83 $0.93

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

FederalEWUStatePrivateOtherEWU Foundation

$105.5

$M

$133.9

21 Source: Financial Aid Office

$117.8 $127.3

5.2% increase

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Financial Aid – by Type

2010 2011 2012 2013Loans $58.8 $66.1 $73.9 $74.2Grants $28.7 $31.8 $33.3 $36.5EWU Grants $1.5 $1.6 $2.1 $2.8Waivers $8.0 $9.6 $10.0 $12.0Other Scholarships $4.6 $5.1 $5.2 $5.2Foundation Scholarships $0.6 $0.6 $0.8 $0.9Work Study $1.6 $1.5 $0.9 $1.1Other $1.7 $1.5 $1.0 $1.4

$0$10$20$30$40$50$60$70$80

Loans

Grants

EWU Grants

Waivers

OtherScholarshipsFoundationScholarshipsWork Study

Other

22

$M

Source: Financial Aid Office 17-Jan-14

Financial Aid 2013

9,731 Students Received Financial Aid

23

Source: Financial Aid Office

75.0%

Percentage of students receiving Financial Aid

44.0%

Percentage of students receiving Pell Grants

15,651

16,926

2012 2013

Applications Processed

+ 8%

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OPERATING RESULTS

24


Flexibility

Operating Results

Financial Asset

Performance Debt

Management

Income Statement Revenue Expenses Net Assets

Do the operating results indicate the university is

managed within available resources?

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What does the Operating Statement mean?

25

At any level of overall university assets, Eastern must live within its annual income over time.

Presents a change in net financial position over the prior year

Analysis of performance of the university across the industry.

Expenditures represent the cost of providing services in support of achieving the institutional mission.

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26

University Revenues, Expenses and Changes in Net Position

$189.0

$200.4 $200.9

$219.8

$181.6 $188.8

$183.6 $193.4

$100

$120

$140

$160

$180

$200

$220

$240

2010 2011 2012 2013

Mill

ions

RevenuesExpenses

Source: EWU Office of Controller FY 2013 data is preliminary, unaudited

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27

University Revenues


$62.9

$71.7

$81.4

$88.3

$57.2

$54.0

$48.4

$55.1

$44.5

$47.7

$46.7

$49.4

$18.2

$18.8

$19.1

$20.2

$6.2

$8.2

$5.2

$6.8

$0 $25 $50 $75 $100 $125 $150 $175 $200 $225 $250

2010

2011

2012

2013

Millions

Student Tuition & Fees

State Funds

Grants, Contracts, FinancialAidAuxiliaries

Other

$189.0M

$200.4M

$200.9M

$219.8M

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28

Key Revenue Indicators

Contribution Ratio Shows portion of revenue by category to

support actual operating expenses

2012

2013

Student Tuition and Fees 44.9% 46.3% State Appropriations – Operating 18.9% 17.7% State and Local Grants & Contracts 10.8% 11.4% Auxiliary Services 10.5% 10.6% Pell Grant 10.5% 10.2% Federal Grants & Contracts 3.0% 2.5% Investment Earnings 1.9% 1.9% State Appropriations – NCFI 0.3% 1.4% Non-Governmental Grants & Contracts 1.5% 1.8% Other Revenues 1.0% 1.6%

The university continues to rebalance revenues from state appropriations to student tuition and fees.

Source: EWU Office of Controller Note: Excludes state capital appropriations and contributions to permanent university endowments FY 2013 data is preliminary, unaudited

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29

Key Revenue Indicators

Tuition Dependency Ratio Net tuition and fees plus governmental grants to the institution for student tuition divided by the sum of operating and non-operating revenues

FY2010 51.1%

FY2011 54.7%

FY2012 61.9%

FY2013 62.6%


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30

University Expenses by Type


$84.0

$83.6

$82.2

$84.3

$33.1

$35.5

$32.1

$36.0

$25.4

$26.9

$27.0

$26.1

$18.1

$19.8

$20.5

$21.5

$10.4

$10.6

$10.7

$10.2

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200

2010

2011

2012

2013

Millions

Salaries and wages

Supplies and Materials

Benefits

Scholarships and fellowships

Depreciation

Utilities

Other

Interest expense

NCFI expenses

Special Items

Overall, University operating expenses increased 4.6%

17-Jan-14

Capital Appropriation History

31

$25.2

$16.2 $16.3

$10.7 $12.8

$24.6

$30.5

$7.6

$0

$5

$10

$15

$20

$25

$30

$35

2007-09 2009-11 2011-13 2013-15

Mill

ions

Minor Works Major ProjectsSource: Appropriation schedule - New appropriations only

State capital funding can fluctuate between biennia and types of projects funded. 2013-15 reflects a dramatic decrease in major projects and minor works funding due to recession impacts.

17-Jan-14

BALANCE SHEET AND INDICATORS

FY2013 (PRELIMINARY, UNAUDITED)

32



Financial Asset

Performance

Debt Management

Does financial asset performance support the strategic mission?

17-Jan-14

What does the Balance Sheet represent?

33

University Assets and Liabilities at a point in time

A Comprehensive View of all that Eastern Owns… and all that Eastern Owes

Peer analysis of Performance within an industry

Analyze Debt Capacity for future capital investments

17-Jan-14

34

Balance Sheet Overview

Source: EWU Office of Controller FY2013 data is preliminary, unaudited

Net assets increased 8% over FY 2012

All Funds 2012 (millions)

2013 (millions)

Total Assets $413.8 $443.0

Total Liabilities $84.4 $87.2

Net Assets (at June 30) $329.4 $355.8

FY 2013 Major components- Cash and investments $126.9M or 29% of total assets Capital assets (land, building, equipment) $293M or 66% of total assets Long term debt $56.8M or 65% of total liabilities Unrestricted net assets (not legally restricted) $86.6M or 24% of net position

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35

Key Balance Sheet Indicators Eastern has consistently remained above the industry baseline


3.35

3.79 4.03

3.66

4.92

4.30

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

2008 2009 2010 2011 2012 2013

Current Ratio: Measure of Liquidity

Current Ratio Industry Baseline

FY 2008-11: Fluctuations are primarily the result of reallocations of invested assets between short and long term.

FY 2012-13: Temporary increase is from Series 2012 unspent bond proceeds for the new residence hall; otherwise the ratio would have been 3.69 and 3.96, respectively.

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36



Financial Asset

Performance Debt

Management

Is debt managed strategically to advance the University’s mission?

Debt Management

17-Jan-14

Debt Management and Oversight

• University Policy • Debt Issuance approved by Board of Trustees • Annual Report to Board of Trustees

– Compliance with policy – Review of existing debt and associated covenants – Debt capacity analysis – Long term capital plans that require financing – Pending debt financed projects

37 17-Jan-14

38

Key Balance Sheet Indicators Eastern is managing debt levels in compliance with the University debt policy. The FY 2013 ratio reflects a temporary decrease until the Series 2012 bond principal payments begin next year.

1.94% 2.17% 2.15% 1.95% 2.33%

1.51%

0%

1%

1%

2%

2%

3%

3%

4%

2008 2009 2010 2011 2012 2013

Financial Debt Burden Ratio: Measures dependence on debt as a source of financing the mission

Financial Debt Burden Ratio EWU Policy


17-Jan-14

Summary

39

• Return on Net Assets Ratio

• Viability Ratio

• Net Operating Ratio

• Primary Reserve Ratio



Financial Asset

Performance Debt

Management

EWU’s Financial Performance Profile

17-Jan-14

EWU Financial Health

40

FY2010 FY2011 FY2012 FY2013

Primary Reserve ratio .39x .41x .48x .52x

Primary Reserve Ratio provides a snapshot of financial strength by indicating how long the institution could function on expendable reserves without relying on additional net position to be generated by operations – a ratio above .40x is advisable.

Net Operating Revenue ratio

-0.57% 0.84% 1.97% 4.54%

Net Operating Ratio measures net operating revenues (expenses) in contrast to total operating revenues – the targeted ratio should be between 2%-5% .


17-Jan-14

EWU Financial Health

41

FY2010 FY2011 FY2012 FY2013 Return on Net Assets ratio 2.53% 3.89% 5.54% 8.01%

A positive return on net position indicates that the institution is better off than it was at the beginning of the year. An improving trend in this ratio is indicative of increasing net position that will strengthen the institution's financial future.

Viability ratio

1.64x

1.98x

1.33x

1.53x

A ratio of >1 indicates the institution has sufficient Unrestricted Net Position to satisfy debt obligations.


17-Jan-14

•Access •Retention •Degree completion •Graduation rates

STUDENTS

•High quality •Program array •Size of the University •Enrollment levels

Academic Programs

•University Strategic Plan •Ability to respond to changing environment •Enrollment Management Plan •Revenue opportunities •Campus Master Plan

Strategic Plan

•EWU expands opportunities for personal transformation through excellence in learning.

•EWU envisions a future of professionally, socially and culturally enriched leaders, citizens, and communities.

Mission and Vision

•Campus investments •Use of debt capacity •Financial flexibility • Informed decision making

Sound Financial Position

Achieving the Goals of the EWU Board of Trustees

42 17-Jan-14

Financial Outlook

17-Jan-14 43

• Increase in salary and benefit costs

• Continued growth in deferred maintenance backlog

• Renewal and investment in technology

• Campus master plan • Financial aid needs

Costs and Investments

• State investment in higher education

• Tuition flexibility • Impact of enrollment

growth on revenue

Revenues

• In EWU’s market area, the enrollment demographics are going to be relatively flat

• Strategic Enrollment Plan will shape Eastern’s future enrollment shape and size

• Higher education participation rates…focus on 4 year sector

Enrollment

Future Impacts

Statewide higher education goals impact shape and size of Eastern.

Need to develop additional markets and strategies to attract more students.

Potential for costs to outpace revenue growth.

CONCLUSION

Eastern Washington University is a

financially stable institution

committed to intergenerational

equity.

44 17-Jan-14

17-Jan-14 45

46

APPENDIX Additional Selected

Information

17-Jan-14

Table of Contents

Balance Sheet Indicators

Selected Fund Levels

47 17-Jan-14

Unrestricted Financial Resources to Operations

0.39 0.41

0.47 0.51

0.00

0.10

0.20

0.30

0.40

0.50

0.60

FY2010 FY2011 FY2012 FY2013

EWU ratio

Median WA PublicUniversities ratioMedian A1 PublicUniversities ratio

48

Source: EWU Office of Controller. Peer data from MFRA (Moody’s) FY 2013 data is preliminary, unaudited

About half of EWU’s adjusted annual operating expenses could be covered by unrestricted net assets; a higher ratio is better

17-Jan-14

49

Key Balance Sheet Indicators

Unrestricted Financial Resources to Operations

Measures coverage of annual operations by the most liquid resources Prelim 2013 Eastern Washington University .51x

2012 Eastern Washington University .47x

2012 Median WA Public Universities .34x

2012 Median A1 Public Universities (industry peers) .26x

Eastern Washington University Dashboard Indicator Good

This indicator suggests Eastern is in a relatively better position to make future investments.


17-Jan-14

Expendable Financial Resources to Direct Debt

0.7x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2009 2010 2011 2012 2013

EWU

Median WA Public Univ.

Median A1Public Univ.

1.9X

50

2.3X

2.6X

2.0X

1.3X

1.7X

Decrease in FY12 ratio is the result of bond debt issued to finance construction of a new residence hall. Expendable resources increased over the prior year improving debt coverage for FY13.


17-Jan-14

51

Key Balance Sheet Indicators

Expendable Financial Resources to Direct Debt

Measures coverage of direct debt by the most liquid resources Prelim 2013 Eastern Washington University 2.0x

2012 Eastern Washington University 1.7x

2012 Median WA Public Universities 1.3x

2012 Median A1 Public Universities 0.7x

Eastern Washington University Dashboard Indicator Good

Expendable resources are twice as much as outstanding debt. Coverage would be 1.5x if relying only on unrestricted net assets.


17-Jan-14

Selected Fund Level Information

52 17-Jan-14

53

FY2013 Auxiliary Funds

$0$2$4$6$8

$10$12$14$16$18$20 Revenue Expenditures & Net Transfers

Source: Financial Services

Auxiliary enterprises provide essential elements of support to university’s academic programs. These funds are expected to operate as profit centers.

Generally, the auxiliary units operated in line with annual plans.

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Unrestricted Net Assets by Fund

$M

$M

17-Jan-14

54

FY2013 Service Funds Revenues, Expenditures and Net Assets

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

WF Const Telecom Motor Pool Printing

Thou

sand

s

Revenue Expenditures

Source: Financial Services

Service funds are intended to provide goods & services for other university operations

-$800

-$600

-$400

-$200

$0

$200

$400

$600

WF C

onst

Telecom

Motor Pool

PrintingThou

sand

s Unrestricted Net Assets

17-Jan-14

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