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1 University of Missouri February, 2013 Natalie “Nikki” Krawitz Vice President for Finance and Administration.

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Presentation on theme: "1 University of Missouri February, 2013 Natalie “Nikki” Krawitz Vice President for Finance and Administration."— Presentation transcript:

1 1 University of Missouri February, 2013 Natalie “Nikki” Krawitz Vice President for Finance and Administration

2 2 Board of Curators President Timothy M. Wolfe Vice President Natalie “Nikki” Krawitz Secretary to the Vice President Memoree Bradley Controller Jane Closterman Accounting Financial Information Systems Financial Reporting Sponsored Programs Payroll Tax Reporting Assistant Vice President Management Services Dave Sheahen Facilities Planning & Dev. Risk & Insurance Mgmt. Business Services Records Management Minority Business Dev. Treasurer Tom Richards Cash Management Debt Management Banking Retirement & Endowment Fund Management Assistant Vice President for Budget Planning & Development Cuba Plain Budget Planning, Development, & Monitoring Appropriations Request Institutional Research & Planning Director of Financial Services Nilufer Joseph Internal Audit Compliance Scholarships (Tuition Settlement, MOST) Financial Analysis University of Missouri System Office of the Vice President for Finance & Administration Chief Procurement Officer & Director, Sourcing and Supply Chain (UMHC) Tony Hall System-wide Procurement

3 3 State Budget Update

4 4 State of Missouri FY2013 Total Operating Budget - $24b

5 5 State of Missouri FY2013 General Revenue Total $8.014m

6 6 Higher Education: A Shrinking State Priority

7 7 State support for higher education in Missouri is significantly lower than comparator states FY2012 State Appropriations for Higher Ed per $1,000 in Personal Income

8 8 Missouri ‘s support for higher education on a per capita basis is less than comparator states FY2012 State Appropriations for Higher Ed per Capita

9 9 To match the national average, Missouri would need to increase funding for H.E. by $472 million FY2012  Missouri ranked 44  Missouri per capita = $154.74  National average = $233.28  Funding gap = $ 78.54  Total Funding Gap = $ 472 m

10 10 There has been a shift in Funding for the University over the last 20 years

11 11 State support is 10.4% below 2001; over the same time period the CPI has increased 26.7% *-8.1% excluding $2.0 M special increase for School of Pharmacy

12 12 34% enrollment growth since FY 2001 Enrollment Growth Fall 2000 – Fall 2012 Headcount Enrollment

13 13 State Appropriations per FTE Student have declined 35% since 2001 Note: Includes appropriations for Cooperative Extension and Ag Experiment Station *estimate State Appropriations /FTE Student 36.5% decline $6,643 $10,462

14 14 UM’s resident UG tuition and fees is below the average for public doctoral institutions.

15 15 Average Annual Tuition & Required Fee Change Over 5-years is the Lowest in the Region

16 16 University of Missouri Consolidated Financial Statements 16

17 17 Total Assets: $6.4 billion Cash & Cash Equivalents$362.78million Accounts & Other Receivables$390.56million Inventories, Prepaid & Other$66.58million Investments$2.66billion Property, Plant and Equip., net $2.85billion Deferred Outflow of Resources $30.41million Total Liabilities: $2.3 billion Current Liabilities$935.39million Bonds & Notes Payable & Capital Leases $1,122.31million Other Noncurrent Liabilities $215.24million FY 2012 Statement of Net Assets* Total Net Assets: $4.1 billion Invested in Capital Assets, Net of Related Debt $1.54billion Restricted$1.16billion Nonexpendable.77 billion Expendable.39 billion Unrestricted$1.38billion *Excludes the University Retirement and Other Postemployment Benefits Trust Funds

18 18  University of Missouri System Long-term Debt Ratings -- Moody’s – Aa1 -- Standard & Poor’s – AA+  Moody’s Long-Term Debt Rating Definitions -- Aaa - strongest creditworthiness -- Aa - very strong creditworthiness -- A - above-average creditworthiness -- Baa - average creditworthiness University of Missouri System Credit Ratings

19 19 Retirement Fund / Endowment Pool - Annualized Historical Performance 19

20 20 Endowment Spending Policy & Distribution  Goals: transparency, improved budgeting, long-term growth without sacrificing short-term benefits  The new policy applies a distribution rate of 4.5% to the trailing 28 quarter average market value of the Endowment Pool.  Transition from 5.0% to 4.5% would be methodically phased in over 5-7 years in a manner that would not cause year over year decreases in the annual distribution.  Measurement date changed from June 30 to Dec 31  Budget exact amount for next fiscal year  Improves transparency  Actual distribution of budget prorated over 12 months of fiscal year  Actuals allowed to go negative to the extent of the budgeted distribution

21 21 Operating Revenues: $2.1 billion ($ Millions) Net Tuition & Fees$545 Government Grants & Contracts $ 241 Private Grants & Contracts$ 71 Sales & Services$ 380 UM Health Care$ 813 Other$ 55 Nonoperating Revenues: $609 million ($ Millions) State Appropriations$ 398 Federal Appropriations$ 28 Federal Pell Grants$ 62 Endow/Invest Income$ 31 Private Gifts$ 90 FY2012 Statement of Revenues Expense and Changes in Net Assets: Revenues * *Excludes the University Retirement and Other Postemployment Benefits Trust Funds

22 22 By Natural Classification ($ Millions) Salaries and Wages$1,318 Staff Benefits$ 360 Supplies, Services and Other$ 763 Scholarships/Fellowships$ 60 Depreciation$ 161 By Function ($ Millions) Instruction$ 605 Research$ 210 Public Service$ 147 Academic Support$ 134 Student Services$ 75 Institutional Support$ 103 Oper. & Maint. Of Plant$ 97 Scholarships/Fellowships$ 60 Depreciation$ 161 Auxiliaries$ 465 Hospital & Clinics$ 605 FY 2012 Operating Expenses: $2.66 billion * * Excludes the University Retirement and Other Postemployment Benefits Trust Funds

23 23 University Stewardship  The University of Missouri takes its stewardship responsibility seriously and engages in a continuous process to identify opportunities to reduce costs and increase efficiencies.  Since 1998, the University of Missouri System has systematically collected and reported on initiatives that have resulted in increased effectiveness and efficiency of University operations.

24 24 Cost Management: $246 million in FY2009-FY2012  Cost Management – initiatives that produce cost savings or eliminate costs

25 25 Summary Impact of Actions Over Last 4 Years $411.7 million $ Millions

26 26 FY 2013 University Budget

27 27 FY2013 $2.7 billion Budget by Fund Type Dollars in Millions

28 28 FY2013 $2.7b Budget Sources

29 29 FY2013 $2.7b Budget Uses

30 30 FY2013 $2.7b Budget Uses: Programmatic 30

31 31 FY 2014 University Budget Outlook

32 32 FY 2014 UM Preliminary Budget Issues  Control rate of increase in expenses relative to revenues  Revenues  Flat state support  Constraints on tuition increases  Expenses  Increase in salaries and wages: merit & market  Increase in medical benefits  Increase in required contribution to Retirement Fund  Increase in M & R 32

33 33 Other Issues on the Horizon  Performance funding  Limited capacity to increase tuition & fees  Pressure to reduce costs  Pressure to increase productivity  Pressure to increase output  Retention rates  Graduation rates  # of Degrees Granted  Transparency and accountability

34 34 Projected Marginal Costs for FY2014 Budget - $51.2 million DecJan 1.Salary & Wages Increase$19.2$19.9 2.Benefits on Salary & Wages Increase 5.4 6.4 3.Flat Rate Benefit Increase (1.5% of Salary & Wages) 7.8 9.1 4. Total Compensation$32.4$35.4 5.Increase in M&R (inflation) 1.4 6.Other Marginal Cost Increases7.69.1 7.Costs Due to Enrollment &Priorities 4.9 5.3 8. Total Marginal Cost Increases$46.3$51.2 $ in Millions

35 35 Projected Marginal Revenues for FY2014 Budget - $21.1 million DecJan 1.Increase in Net Tuition from Inflation (2% Dec; 1.7% Jan) $9.5$8.1 2.Increase in Net Supplemental from rate changes 2.4 2.3 3.Increase in Net Tuition Above Inflation 1.6 1.9 4.Increase in Net Tuition & Fees from Enrollment 6.64.9 5.State Appropriations Change0.0 6.Increase in Other Revenues (incl. dedicated) 1.2 3.9 7. Total Marginal Revenue Increases$21.3$21.1 $ in Millions

36 36 Preliminary Funding Gap of $30.1 million DecJan 1. Marginal Cost Increases$46.3$ 51.2 2. Marginal Revenue Increases$21.3$ 21.1 3. Net Funding Gap$25.0$ 30.1 4. Gap as a % of Operating Expenses2.3%2.7% 5. Impact of 1% inc/dec State Approps (net)$ 3.8 6. Impact of 1% Rate inc in Net Tuition & Fees$ 4.8 7. Add’l Cost to reach M&R policy (FCNI of 0.30) $ 49.3 8. Strategic Reallocation 1-2% $ in Millions

37 37 FY2014 Core Operating Appropriations Summary I.Minimum Funding for Core Operations FY13 Base $398M; UMKC/MSU Pharmacy $2M; MOFAST $0.3M; Core Operating Support $15.7M; St. Louis Equity $1.9M $417.9 II.a.Advancing Missouri's Competitiveness– STEM Workforce Needs in STEM $20.2M; Science & Engineering Equipment $2M; STEM Enrollment Growth $16.6M; STEM Infrastructure $16.4M 55.2 II.b.Advancing Missouri's Competitiveness – Caring for Missourians – Phase 2 10.3 Total Core Request $ in Millions $483.4

38 38 Other Strategic Operating Investment Needs OPEN – GB – INFO 2 1.Protecting the University’s Infrastructure Base M&R – year 1 of 2 year request $12.3 2.MU Medical School Partnerships 10.1 3.Translational Science20.0 4.Academic & Research Parity w/ Peers15.6 Total Other Strategic Investment Needs $ in Millions $58.0

39 39 FY 2014 Capital Appropriations Request State RequestCampusTotal Total Tier I$381,190,000$41,020,000$422,210,000 Total Tier II$109,432,000$28,412,000$137,844,000 Total Tier III$145,221,000$27,211,000$172,432,000 Total Rehab & New Construction $635,843,000$96,643,000$732,486,000 Total Engineering Equip $1,432,800 $2,865,600

40 40 Rehabilitation & New ConstructionState RequestCampusTotal Critical Facility Needs$190,042,000$0$190,042,000 Benton/Stadler Renovation-UMSL $60,000,000$0$60,000,000 College of Engineering - Lafferre Hall Reconstruction, Additions & Renovations- MU $54,735,000$13,684,000$68,419,000 School of Medicine Renovation and Health Sciences Education Building Phase II –UMKC $48,459,000$27,336,000$75,795,000 Chemistry and Biological Science Renovation- S&T $27,954,000$0$27,954,000 Total Tier I$381,190,000$41,020,000$422,210,000 State Historical Society Building & Museum$49,062,000$0$49,062,000 FY 2014 Tier 1 Capital Appropriations Request

41 41 Strategic Planning

42 42 Developing system and campus strategies in a time of tremendous challenge and change Some challenges confronting the system: 1.Reduced state and federal funding 2.Limits on tuition increases 3.Changes in student demographics 4.The impact of technology on teaching and learning 5.Public accountability 6.The economic crisis 7.The demand for greater higher education access and increased number of degrees conferred 8.Skilled workforce demands Some challenges confronting the system: 1.Reduced state and federal funding 2.Limits on tuition increases 3.Changes in student demographics 4.The impact of technology on teaching and learning 5.Public accountability 6.The economic crisis 7.The demand for greater higher education access and increased number of degrees conferred 8.Skilled workforce demands “We don’t have a viable business model.” “We’re going to hit a brick wall at some point.” “What is the end to this? What will be cut next?” “We have survived the funding cuts by growing enrollment, but we’re reaching capacity.” “With the shift to online learning, there are big questions…” “Our laboratories are in worse shape than the high school laboratories.” “We are being forced to do more with fewer resources and at some point it does affect quality.” “Faculty members feel overloaded and deans are concerned that research productivity is declining.” “We need to fight to keep our formula funds.” © Copyright 2012 Innosight LLC

43 43 Strategic Planning Goals  Develop campus strategies and a system strategy that build on our unique advantages and reflect clear trade-offs;  Develop campus strategies and a system strategy that clearly serve the identified needs of the state and the regions we serve;  Develop ways to incorporate disruptive innovations into the business model;  Develop sustainable financial plans to support the strategies;  Identify ways that we can further leverage being a system both academically and operationally;  Identify criteria, other than history, for allocating a portion of state resources toward strategy execution beginning with 5 - 10% of the 2014 appropriation and growing over time.

44 44 Strategic Planning Timeline Develop draft strategy statements June Workshop Establish situational awareness Identify key “themes” and “levers” Learn principles of ideation October Workshop Make case for change Build consensus Finalize strategy statement, themes and levers November - February Learn to identify, plan and measure activities that will support the strategy, theme and levers March Workshop Plan activities Engage activity owners Develop final strategic plan April – June Output Draft strategy statements Draft themes and levers Finalized strategy statements, themes and levers Draft activities and metrics Final strategic plan with detailed activities and metrics © Copyright 2012 Innosight LLC

45 45 OBJECTIVE SCOPE A concise strategy statement has discrete building blocks  A single objective  Measurable and specific  Time bound  Addresses key challenges  Describes in detail which customer you are pursuing  Describes in detail the product or service you are offering to the customer  Describes the unique activities or assets that no other organization can claim EFFECTIVE:“Increase enrollment to 20,000 by 2020” INEFFECTIVE: “Increase the number of qualified graduates” “Career-focused education for full-time undergraduates who are interested in STEM subjects” “Aligned curriculum and student experience for undergraduates” 3 required components: “Internship programs with 40 partner employers in the St. Louis area” “World class instructors”    ADVANTAGEOBJECTIVE © Copyright 2012 Innosight LLC Source: Collis, David J., and Michael G. Rukstad. "Can You Say What Your Strategy Is?“ Harvard Business Review (April 2008). Print.; Innosight analysis.

46 46 A strategy statement is not a mission statement MISSION Why we exist MISSION Why we exist VALUES What we believe in and how we will behave VALUES What we believe in and how we will behave STRATEGY What our competitive game plan will be STRATEGY What our competitive game plan will be Metrics and Financial Plan How we will monitor and implement that plan Metrics and Financial Plan How we will monitor and implement that plan The basic elements of a strategy statement: OBJECTIVE = Ends SCOPE = Domain ADVANTAGE = Means “…discover, disseminate, preserve and apply knowledge…” Hierarchy of organizational statements “…Respect, Responsibility, Discovery, Excellence…” © Copyright 2012 Innosight LLC Source: Collis, David J., and Michael G. Rukstad. "Can You Say What Your Strategy Is?" Harvard Business Review (April 2008). Print.; Innosight and University of Missouri analysis.

47 47 A critical test: The strategy should explain how a campus will leverage its unique strengths to overcome challenges Mission and Vision STRATEGY Current State Barriers What specific barriers does your campus face? © Copyright 2012 Innosight LLC

48 48 UM System Draft Strategy Statement The UM System will collaborate with the campuses in achieving, by 2018, mutually agreed upon, best-in-class, performance by: 1.Leveraging our unique campus strengths and resources, 2.Developing and applying leading practices, and 3.Advocating for higher education and the university. © Copyright 2012 Innosight LLC

49 49 Questions?

50 50 Appendix - Statistics 50

51 51 Operating Statistics  Statistics – FY 2012 Accounting Transactions (14.1 million) Bank Reconciliation (53 bank accounts) Accounts Payable (~ 322,500 payments; ~$2.0 billion) Payroll Processing (47,141 Form W-2s; 4,838 Form 1099-MISCs; 9,103 Form 1099-Rs; 81,295 Form 1098-Ts)  Total Current Funds Budget (FY2013) = $2.7 billion Operations Budget = $1.1 billion Auxiliaries & Service Operations Budget = $1.3 billion Restricted Budget = $302.6 million  Appropriations Request for Operations (FY2014) Core Mission = $483.4 million Other Programs = $25.1 million

52 52  Retirement Fund Defined benefit plan: $2.8 billion (as of 9/30/2012), 46 Investment Managers  Endowment Fund Multiple pooled funds: $1.1 billion (as of 9/30/2012) Endowment Pool, 46 Investment Managers Fixed Income Pool, 1 Investment Manager Almost 5,000 individual endowments Funds held in trust by outside organizations: $120.8 million (as of 6/30/2012)  General Pool Represents the University’s cash and reserves $1.7 billion (as of 9/30/2012) Operating Statistics

53 53  Debt Issuance System Facilities $1.368 billion outstanding as of 06/30/12 Bond RatingAa1 with Moody’s, AA+ with Standard & Poor’s  Bank Relationships One primary bank with 12 different depository banks and 4 campus bank facilities in Missouri Checks deposited annually over $468 million; electronic receipts of over $2.2 billion Ensure funds are available for 505,000+ vendor and employee payments issued annually, totaling approximately $3 billion Fund transfers for purchase of securities of $5.5 billion; ACH/wire transactions to pay vendors and employees of $2.3 billion annually; checks issued to pay vendors and employees of $707 million  Credit Cards Manage credit card operations at 330 locations on four campuses, Hospital and internet Annual volume $88.4 million  Lockbox Dollar amount of checks and credit cards processed in calendar year 2012: $332 million Operating Statistics

54 54  Property  Owned in Missouri: 2,123 acres on-campus 17,314 acres off-campus  Owned in Other States: 582 acres  Transactions during FY12:  Sales 3 @ $ 790,500  Acquisitions 8 @ $ 13,171,836  Leases to Others 78 @ $ 4,577,913  Leases from Others 59 @ $ 2,652,170 Operating Statistics

55 55  Facilities Planning & Development  1,596 Buildings, 29.2 million gross square feet  Replacement Value$ 7.8 billion  Plant Operating Expenditures $ 69.4 million  Maintenance & Repair Expenses$ 57.8 million  Design & Construction Contracts $ 134.8 million  Minority Business Development Services & Supplies Financial Services Architecture/ $ 5,753,912Broker Transactions $39,872,746 Engineering ServicesBonds Issued $ 610,000 Construction Services $ 20,620,030 Procurement $ 26,376,968 Operating Statistics

56 56  Records Management 110,825 boxes stored 35,750 activities (lookups, filings, destruction)  Risk & Insurance Management (estimated FY13) Total cost of risk $ 23,335,510 Commercial Insurance $ 2,976,149 Self Insurance $ 17,744,431 Excess Commercial Insurance $ 2,614,930 Operating Statistics

57 57 The Procurement & Supply Chain departments work under a Shared Services model utilizing comprehensive Memos of Understanding (MOU’s) and report to the Chief Procurement Officer, this includes: UM Procurement Services Procurement Services is responsible for the contracting and procurement for the entire University including UM System, Columbia, Missouri S & T, UMSL and UMKC campuses. They produce a comprehensive scorecard quarterly for the Vice Chancellors (in a shared governance model) that report on pre-determined service level expectations and key performance indicators. UM Procurement Operations In their role they work closely with Procurement Services and the Healthcare Supply Chain team and are responsible for implementing, maintaining, and managing procurements software and web applications, as well as developing and reporting data from those applications. This includes providing a Hotline (comprehensive call center) for a customer base of nearly 5000 users. MUHC Sourcing and Supply Chain (SSC) SSC provides end to end supply chain services for all of MU Health Care. They differ from UM Procurement Services in addition to contracting and procurement they also provide Distribution, Motor Transport (Couriers) and a comprehensive Value Analysis program. Their operations are subject to a many regulatory compliance requirements including the Joint Commission and Centers for Medicare & Medicaid Services (CMS). Their offices and warehouse are located off-site in the Quarterdeck Building and are a 24/7-365 operation. Procurement/Supply Chain

58 58 Operating Statistics Savings/Revenue FY 12 $13,750,297 Process Savings RFP/B Resulting in PO $ 3,981,145 RFP/B Resulting in contract $ 384,070 Cost Avoidance using SMS $ 655,798 Negotiated Savings RFP/B Resulting in PO $ 1,724,707 RFP/B/GPO results in contract $ 4,934,589 Revenue PCard Rebate $ 1,523,024 SMS Rebate $ 546,964 UM Procurement/Procurement Operations 11,246 calls were handled by the Operations Hotline in FY 12 52,883 Purchase Orders were processed for $167,376,490 44,784 Show Me Shop Orders were placed for $ 31,688,178 UM produced 368,179 Procurement Card/Fleet transactions for a value of $ 99,626,540 The University Procurement team impacts approximately $370 Million in expenses annually and is a six (6) year National Procurement Institute award winning operation. They have representation providing services on each of UM’s campuses in a centralized shared service model.

59 59 MUHC Sourcing and Supply Chain (SSC) Operating Statistics Savings/Revenue in FY 12 Total $13,209,954 Process Savings RFP/B Resulting in PO/Contract $ 752,796 Par/Inventory Reductions $ 63,051 Cost Avoidance/ UHC/Novation $ 5,366,599 Negotiated Savings Reduction in previous price paid $ 1,634,921 Contract negotiated savings $ 2,964,398 Rebates Manufacture/Standardization Rebates $ 433,874 UHC Patronage Equity Credits $ 481,942 PHS Indigent Drug & Device Recovery $ 312,373 Perpetual Inventory Project BS Adj. $ 1,200,000 The supply chain services University Hospital, MU Psychiatric Center, Missouri Orthopedic Institute, Women’s and Children’s Hospital, Ellis Fischel Cancer Center, Missouri Center for Outpatient Surgery, Missouri Rehabilitation Center and all clinics (local and outlying). In FY 12 the health systems perpetual inventory locations averaged 17.4 turns on a goal of 12. Nearly $4M in inventory is managed in Perpetual Locations and Non-Perpetual Locations account for $ 11,514,634 in inventory. Average monthly issues from inventory = $ 2,240,244 Inventory Picks/Month average 467,932 lines 60, 643 Purchase Orders were processed in FY12

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