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Budget and Planning Overview 1 MICHIGAN STATE U N I V E R S I T Y.

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Presentation on theme: "Budget and Planning Overview 1 MICHIGAN STATE U N I V E R S I T Y."— Presentation transcript:

1 Budget and Planning Overview 1 MICHIGAN STATE U N I V E R S I T Y

2 Bolder by Design Financial Framework Budget While maintaining credit rating and debt capacity; sufficient working capital and liquidity; investment performance and endowment; comparability to peer financial composition and performance 2 Context

3 Budget Planning – Pro forma Preliminary budget approved by the BOT in June 2013 *Includes 1.5% general merit, 0.5% college market, and 0.5% provost market pool ** Includes 1.5% general merit, 0.75% college market, and 0.5% provost market pool***Infrastructure financing 3 MICHIGAN STATE U N I V E R S I T Y Budget Item Final BOT Approved Preliminary BOT ApprovedComment/Update State Appropriations 1.82% 2.0% Monitoring additional support/tuition caps Tuition & Fees 1.9% Lower Div 3.6% Upper Div 3.0% Lower Div 3.0% Upper Div Appropriation/tuition caps, alternate structures Financial Aid4.5%4.0% As planned Graduate Assistants2.0% As planned Faculty Salaries2.25%*2.0%** Big Ten trending higher/Evaluation of additional allocation Utilities4.0%4.0%*** Monitor natural gas market Health Care1.5%5.0% Reviewing necessary increment Academic Competitiveness$2.0 Under Review Balance$0

4 4 MSU Revenues: MSU planning requires $17M from two sources MICHIGAN STATE U N I V E R S I T Y

5 5 1% Planning Parameters

6 Long-Term Financial Framework Gap Analysis to Inform Long-Range Planning 6 Update ten-year analysis of critical university areas requiring long-term support CategoryGoal/Comment Academic CompetitivenessAdvance top 100 status ComputingAcademic, student needs ResearchAdvance top 100 status Critical SpaceUpdated classroom and laboratory space JITMaintain existing space in usable condition Power and UtilitiesExpand supply, meet energy transition goals Health CareMonitor ACA impact, bargaining agreements Financial AidFill $20M donor income gap to peers

7 Budget Planning – Pro forma Preliminary budget approved by the BOT in June 2013 *Includes 1.5% general merit, 0.5% college market, and 0.5% provost market pool ** Includes 1.5% general merit, 0.75% college market, and 0.5% provost market pool***Infrastructure financing 7 MICHIGAN STATE U N I V E R S I T Y Budget Item Final BOT Approved Preliminary BOT Approved Planning UpdateComment/Update State Appropriations 1.82% 2% 2.0% Tuition & Fees 1.9% Lower Div 3.6% Upper Div 3.0% Lower Div 3.0% Upper Div 3.0% Lower Div 3.0% Upper Div Financial Aid4.5%4.0% Graduate Assistants2.0% Faculty Salaries2.25%*2.0%** Big Ten trending higher/Evaluation of additional allocation Utilities4.0%4.0%*** Health Care1.5%5.0% Academic Competitiveness$2.0 Under review Balance$0

8 Financial Health MICHIGAN STATE U N I V E R S I T Y 8

9 Multi-Year Perspective MSU has managed through the most difficult decade of economic circumstances in its recent history Despite Michigan fiscal circumstances being more severe than in surrounding states, MSU financial indicators approximate the Big Ten median Reflective of prudent financial policies, a focus on cost- containment, and efficient operations 9

10 Federal fiscal policy suggests continued pressure to reduce “discretionary” spending including research activities and possibly financial aid, next Sequester deadline is January 15, 2014 with an estimated $20B impact In addition to the above, possible Medicare – Medicaid reimbursements including support for graduate medical education at risk Federal Affordability of Care Act initiates most significant health care changes in decades, potentially increasing baseline health care costs beginning in FY15 Economy improving at state level, full spring back not anticipated 10 Economic Trends

11 MSU’s Aa1 long term credit rating reflects its overall financial strength Current external debt approximates $860M which includes $256M for Residential and Hospitality Services and $56M for Athletics An additional $169M in short-term commercial paper to be repaid by internal units Other obligations include: Internal loans of $20.5M, Federal student loans of $38M, and current leases totaling $44.3M Ongoing need to prioritize debt funded projects, manage debt capacity, debt service availability, and ratings optimization … additional debt capacity of $300M to $500M available within current rating, additional capacity at lesser ratings 11 MSU Credit Rating and Debt

12 Currently exceeds targeted liquidity level of $284 million Liquidity risk may exist if significant deviations from planned state or federal allocations occur External line of credit established to optimize longer-term investment strategy 12 Sufficient Working Capital & Liquidity

13 Over ten years, MSU investment performance ranks in the 16 th percentile versus national peers, most recent year performance at 12.1 percent ranks in the top third Annual giving low in Big Ten but improving, donor based financial aid is lowest in Big Ten, lags median by $20 million Endowment growth (includes return and annual giving) ranks 6 th in Big Ten, total endowment is noted at $1 Billion, and includes the Foundation at $327M 13 Investment Performance & Endowment Status

14 Combined tuition & fees and appropriations per student over $1,700 less than Big Ten median, representing over $75M in annual revenue Contracts and grants received in immediate past year at $478 million (reflects impact of Sequester), up 27 percent over 5 years FY12 research expenditures up $53M over previous year, at 11.6 percent reflects the largest institutional increase across the Big Ten 14 Peer Financials

15 Revenues 15 MICHIGAN STATE U N I V E R S I T Y

16 University Revenues All Funds Revenue - $2.3B Proportion of Revenue Tuition – 31% Sponsored Program – 19% Auxiliary – 13% Appropriations – 11% Gifts – 9% All Funds Revenue - $734M Proportion of Revenue Appropriations – 28% Sponsored Program – 19% Tuition– 18% Auxiliary – 16% Gifts – 6% 16 MICHIGAN STATE U N I V E R S I T Y

17 State of the State 17 Manufacturing job growth leads all states Added 221,00 private-sector jobs over 3 years Per capita income growth tied first in Great Lakes states Out migration trend halted, population up for first time since Make Michigan a leader in STEM fields MICHIGAN STATE U N I V E R S I T Y

18 There remains a negative view of universities in parts of the legislature – assumption that our costs are out of control (Progress evident but not over) Continuing push on transferability of credits Continued efforts to micromanage several aspects of University activity – including benefits for same-sex couples, stem cell research and faculty bias However, we are starting to see some recognition of the role the State has had in raising the costs of education State Issues MICHIGAN STATE U N I V E R S I T Y 18

19 Appropriation Trends 19 Appropriations down 15% over last decade State appropriations approximate 20% of general fund budget Recent cycles have yielded modest increases ~1-2% Future year increases anticipated given consistent funding model formulations and state economic performance Current state economic indicators anticipate a 2.9% increase to GF/GP in 2014 and 4.4% in fiscal 2015 MICHIGAN STATE U N I V E R S I T Y

20 20 Appropriations History Appropriations down $44M over 10 years If increased at inflation, MSU appropriations would be $120M more than current levels MICHIGAN STATE U N I V E R S I T Y

21 Performance Funding Model 21 Continuation of Business Leaders for Michigan metrics and scaling Undergraduate critical skills degrees R&D Expenditures Graduation rate Continuation of tuition restraint provisions for resident undergraduate students, particularly in the context of incremental state support Need to address variance in per FTE funding among State’s research universities Institutional Support as % of Core Expenses Total undergrad FYES (scaling) MICHIGAN STATE U N I V E R S I T Y

22 State financially is recovering $900 Million Surplus Big push for tax cut Transportation $1 b shortfall DCH $200 M shortfall County winter budgets exhausted (salt, plows) State pension liability growing Base funding for University expected to be >3% - but how much won’t be known until Feb. Opportunities for initiative funding – Engineering Capacity, Autism, Ag Processing/Workforce State Outlook MICHIGAN STATE U N I V E R S I T Y 22

23 23 Accelerating Growth for Michigan Food and Agriculture MSU Food Processing and Innovation Center (FPIC) Space for high-growth companies to innovate, scale up and market new products/processes State of the art USDA/FDA facility permits product and process development and finished products Flexible production capabilities Surveyed high-growth firms show interest in facility Food Processing Workforce Development Program Partner with community colleges to establish 2-year training programs Revitalization of fruit and vegetable lab Detroit Initiative for Advanced Food Processing and Export Phase I – Develop advanced-processing-and-export plan while strengthening existing city capacity Phase II- Implement and create state-of-art processing center MICHIGAN STATE U N I V E R S I T Y

24 24 Accelerating Growth for Michigan Food and Agriculture MICHIGAN STATE U N I V E R S I T Y

25 25 Appropriation: “What if” Analysis Pro-forma FY15 MSU Budget projected a $17M revenue increase from a combination of Appropriations at 2% ($2.5M X 2) and Resident Undergrad Tuition at 3% ($4M X 3) Alternatives A 5% appropriation increase and tuition capped at 1% balances the proposal Caps at 2% and 3% would provide additional resources of $4M and $8M, respectively A 4% appropriation increase and tuition capped at 1.75% balances the proposal. Caps at 2% and 3% would provide additional resources of $1M and $5M respectively MICHIGAN STATE U N I V E R S I T Y

26 Tuition and Fee Considerations 26 Constrained ability to increase tuition and fee rates Public sensitivity to non-resident student mix Peer standing across dimensions Resident/NR tuition rates Residency mix Structure MICHIGAN STATE U N I V E R S I T Y

27 Alternate Tuition Approaches 27 MICHIGAN STATE U N I V E R S I T Y Improve existing incentives for accelerating time to degree Accommodate increasing numbers of advance placement credit and student desire to affiliate with a major sooner in academic career Maintain economic opportunity for students to attain degrees in college of choice Increase comparability of tuition and fee structure with peer institutions

28 Alternative Tuition Structure by Core vs Professional and Other 28 MICHIGAN STATE U N I V E R S I T Y Core Colleges Arts & Letters Natural Science Social Science UUD Lyman Briggs James Madison RCAH Comm Arts MusicNursingEngineeringEducationBusinessAgricultureVet MedHuman MedOsteo Med Core college model; includes “admit when ready” modification

29 29 Michigan Resources per Student MICHIGAN STATE U N I V E R S I T Y

30 Big Ten Avg. 36% 30 * Estimated Big Ten Non-Resident Undergraduate Enrollment % Fall 2012 MICHIGAN STATE U N I V E R S I T Y

31 2012 Federal Budget Sources and Uses Total Federal Budget Sources: $3.7TTotal Federal Budget Uses: $3.7T 31 Source: American Association for the Advancement of Science MICHIGAN STATE U N I V E R S I T Y

32 FY14 Omnibus Appropriations legislation for entire federal government passed the House of Representatives by a vote of on January 15. Senate passed the Omnibus on January 16 by a vote of Omnibus funds all federal agencies, such as USDA and the National Science Foundation, through the end of September Some relief from sequestration provided for FY14 and FY15 in the 2013 Bipartisan Agreement Act Sequestration cap lifted by $63 billion ($45 billion in FY14 and $18 billion in FY15). Sequestration Cuts remain in place from FY16 to FY20. Status Update MICHIGAN STATE U N I V E R S I T Y 32

33 33 Federal Discretionary Spending MICHIGAN STATE U N I V E R S I T Y

34 AgencyFY12 Appropriation Adjusted FY12 Appropriation (Inflated to FY14) FINAL FY14 APPROPRIATION Difference: FY14 to Adjusted FY12 National Science Foundation $7.03 B$7.46 B$7.2 B-$0.26 B USDA Hatch Act $236 m$250.4 m$243.7 m-$6.7 m Smith Lever $294 m$311.9 m$300 m-$11.9 m Ag & Food Research Institute $265 m$281.1$316$35.9 m Federal Budget Request: Research MICHIGAN STATE U N I V E R S I T Y 34

35 Agency FY12 Appropriati on Adjusted FY12 Appropriation (Inflated to FY14) FINAL FY14 APPROPRIATION Difference: FY14 to Adjusted FY12 NIH$30.7 B$32.6 B$29.9-$2.7 B DOD Basic Research$2.11 B$2.2 B$2.17 B-$0.03 B Energy Office of Science ARPA-E $4.87 B $275 m $5.17 B $291.7 m $5.07B $280 m -$0.10 B m Education Institute of Education Sciences $593.7 m$629.9 m$576.9 m-$53 m Federal Budget Request: Research MICHIGAN STATE U N I V E R S I T Y 35

36 FRIB MICHIGAN STATE U N I V E R S I T Y 36 Federal budget includes $55 Million for FRIB State of Michigan Strategic Fund to induce FRIB bonds for $91M on February 25

37 Funded at last year’s level of $22.8 billion. Increased mandatory spending will bump up the maximum award next year by $85 to $5,730. Number of recipients is expected to increase from 9.1 million to 9.3 million. Pell Grants MICHIGAN STATE U N I V E R S I T Y 37

38 Department of Education Graduate Assistance in Areas of National Need (GAANN) and Javits Fellowship funded $29.3 million – the same level as last year. NSF EHR/Division of Graduate Education - $846 million ($13 million more than FY13) EHR/Alliances for Graduate Education - $7.84 million (the same as last year) Graduate Programs MICHIGAN STATE U N I V E R S I T Y 38

39 Department of Education Graduate Assistance in Areas of National Need (GAANN) and Javits Fellowship funded $29.3 million – the same level as last year. NSF EHR/Division of Graduate Education - $846 million ($13 million more than FY13) EHR/Alliances for Graduate Education - $7.84 million (the same as last year) Next Steps MICHIGAN STATE U N I V E R S I T Y 39

40 Expenses 40 MICHIGAN STATE U N I V E R S I T Y

41 Expense Considerations 41 Financial Aid – Federal budget funding of high-need students, distribution of family income, appropriate discounting Faculty salaries – Peer monitoring salary/compensation; Big Ten ranging upward Coalition salaries – Per contract Health Care – ACA impact and planning, continuation of 5% cost cap Utilities – Continuation of energy transition plan, commodities monitoring Research – Federal budget impact on grants and contracts MICHIGAN STATE U N I V E R S I T Y

42 Student Assistance - $242M Total Student Assistance Student Assistance - $625.3M 42 Over the last five years, MSU has increased financial aid by 50% over the last five years, more than 2 times the increase to resident undergraduate tuition rates MICHIGAN STATE U N I V E R S I T Y

43 43 Financial Aid Rates of Change and Tuition/Appropriation Rates of Change MICHIGAN STATE U N I V E R S I T Y

44 Family Income Distribution 44 Adjusted to 2013 dollars MICHIGAN STATE U N I V E R S I T Y

45 Significant Affordable Care Act Provisions ElementTiming MSU Implications MSU Costs Employee Relations Cost Drivers: Shared responsibility fees, individual insurance mandate, expanded eligibility for MSU plans FY15Increased costs due to wider eligibility Est. $2.3M-$6.1M 2%-5% annual increase Mitigate employee cost-sharing Transitional Reinsurance Fee (Temporary levy on employer group health plans) FY15Assessed for FY15- FY16 $2.0M -$2.5M 2%-2.5% increase Fee ranges between $60- $100 per member Mitigate employee cost-sharing Excise tax on “Cadillac” plans 40% tax applied to plans valued above $10,200 (individual) and $27,500 (family) FY19MSU exposure a function of cost annual growth, growth, $1.6M Mitigate employee cost-sharing Other Notes: Other provisions include W-2 reporting, group health plan fees, preventative care additions, revised flex spending limits, auto enrollment, and employer access to state exchange. In total, anticipated cost increases of $0.3M to $0.4M are anticipated. 45 MICHIGAN STATE U N I V E R S I T Y

46 46 *Median does not include Northwestern Big Ten Faculty Salaries MICHIGAN STATE U N I V E R S I T Y

47 Big Ten Faculty Compensation Big Ten Median $135,344* *Median does not include Northwestern MICHIGAN STATE U N I V E R S I T Y

48 Big Ten Faculty Compensation (Adjusted for post-retirement healthcare) Big Ten Median $133,852* *Median does not include Northwestern MICHIGAN STATE U N I V E R S I T Y

49 Big Ten Median $17, Big Ten RA Compensation MICHIGAN STATE U N I V E R S I T Y

50 Big Ten Median $16, Big Ten TA Compensation MICHIGAN STATE U N I V E R S I T Y

51 51 Background MICHIGAN STATE U N I V E R S I T Y

52 Alternative Tuition Structure by Core vs Professional and Other 52 MICHIGAN STATE U N I V E R S I T Y

53 MSU ranks 7 th in the Big Ten for resident tuition and fees and 8 th cost of attendance Resident Tuition & FeesResident Cost of Attendance Big Ten Resident Tuition & Cost of Attendance MICHIGAN STATE U N I V E R S I T Y 53

54 MSU ranks 3 rd in the Big Ten for non-resident tuition and fees and 3 rd cost of attendance Non-Resident Tuition & Fees Non-Resident Cost of Attendance Big Ten Non-Resident Tuition & Cost of Attendance MICHIGAN STATE U N I V E R S I T Y In addition, MSU international students are assessed a $500 per semester fee 54

55 Student Debt MICHIGAN STATE U N I V E R S I T Y 55

56 56 Big Ten Resources per Student Source: IPEDS Net of AES/CES component MICHIGAN STATE U N I V E R S I T Y


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