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Indiana UniversityFiscal Affairs Update

September 25, 2013

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Overview

Higher Education Headwinds

IU Financial Trends

Long Term Planning

Initiatives

Upsides

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Strong Financial History Moody’s Upgrade to Aaa Post Financial Crisis Continued Focus on

Business Analytics Cost Containment Alternative Revenue Streams

Not Immune to Pressures of the “New Normal” Higher Education Headwinds

Significant pressures on tuition rate increases Decreased household wealth National focus on student debt levels and student loan defaults Downward trend in state appropriation Declines in research spending Escalated regulatory and accreditation risk Investment volatility Health Care Exposure

Financial Backdrop

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Rising Student Loan Burden and Defaults Taint Perception Nationally, Student Loan Defaults Have Doubled Since 2003 (from 4.5% to 9.1%) IU has Particular Issues on some of our Regional Campuses

Perception that Starting Salaries are not Keeping Pace with Cost of Degree

Getting a Degree Costs Less Than Perceived

Perception that Increased “Lifestyle Spending” is Attributable to Institutions of Higher Education

Perception of a Higher Education Degree Stressed

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Federal Research Funding Slowing Decline in award already granted Decline in new awards Sequestration cuts Increased competition for the same “pie”

Private Foundation Funding “Lumpy” Private Research Universities have had more Success Growing Grant

Revenues in Past Two Years But, for both public & private higher rated universities have fared better than

lower rated Larger research universities (>$3B) have fared better than smaller

Private Foundation Funding “Lumpy” Research Expense Reductions Lag Cuts to Grant Revenue Growth

Research Funding Stressed

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Operating Funds Concentration in Fixed Income due to State Constitution Rising Interest Rate Environment will Stress Returns

Endowment Volatility in Investment Returns Gift Revenue Difficult to Predict

Investment Volatility

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Rising Health Care Costs Indiana – One of Unhealthiest States Uncertainty Over Implementation of Health Care Reform

Indirect Exposure to IU Health Health of IU Health Business Model will Impact School of Medicine

Reimbursement Pressure from all PayersLimited Rate Increases and Potential Funding Cuts from Medicare and MedicaidPotential Decrease to Graduate Medical Education Funding

Health Care Exposure

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Trends Are Unsustainable

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Increase Focus on Governance & Management to Provide Long Term Sustainability

Moody’s Investors Services, July 2013

Must Strive to Increase Cost Efficiency in Light of Decelerating/ Stressed Revenue

Hallmarks of Governance & Management Board & Senior Management Composition Oversight & Disclosure Practices Short – and Long- Term Planning Self-Assessment and Benchmarking Government Relations

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IU Long Term Financial Model Dashboard and Strategic Ratios

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Internal, Cross-functional Consulting Team

Public-private partnerships/ asset monetizations

Functional reviews

Identify new revenue streams

Managed Print Services

Energy

Cash efficiency

Investment returns

Capital structure

Initiatives

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Enough?

- Higher Education as a National Right - Extended 0% Tuition Increase

- Further Cuts in Federal Spending - Further Cuts in State Appropriation

What would we do?

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Current Position of Financial Strength

Fundamental Demand for Higher Education is Still High Stronger Earnings by Educational Attainment Unemployment Inversely Related to Educational Attainment

Recent graduates are having a tougher time finding jobs Global Economy Drives Demand for Educated Worker

No Viable Substitute for a Higher Education Degree

Strong Demand for IU Brand

Relatively Speaking, Indiana is Financially Healthy and the Recent Tone at the State has been Positive

Upsides