Welcome to the Two-Year Budgeting Workshop John Sejdinaj Sam Adams

Two-Year Budgeting Workshop Agenda Welcome and Introductions Two-Year Timeline Retirement RFP Compensation Overview and Other Changes Credit Hour Projection Model 2.0 University Fiscal Analysis Budget Construction Tools and Phase 1 Edit Reporting Incidental Income Fee Redesign Wrap-Up and Close

Moody’s - Public University Median FY2017 Results (193 Rated Public Universities) 1. Revenue growth declined for second straight year and trailed expense growth -Median revenue growth of 2.9% in 2017, down from 3.9% in 2015 -Median expense growth surpassed median revenue growth by almost 2% Median “Aaa” Revenue Growth of 4.0% vs. Expense Growth of 6.3% -Containing expense growth will prove difficult with wage and capital spending pressure 2. Revenue growth varies with notable widespread weakness -Revenue growth varies across higher education sector from -7% to +14% -Majority of universities (65%) had revenue growth below higher education inflation -Large segment (25%) witnessed revenue declines Source: Moody’s Investors Service “Sector In-Depth, Medians - Public university median revenue growth falls for second year,” June 28, 2018

Moody’s FY2017 - Revenue Growth Declined for a Second Straight Year, Falling Below Expense Growth

Moody’s FY2017 – Revenue Growth Varies Across the Sector (Bars represent revenue growth at individual universities) Indiana University Revenue Growth in 2017 = 3.3%

Moody’s Higher education 2018 outlook changed to negative as revenue growth moderates NEGATIVE STABLE POSITIVE » Annual change in aggregate operating revenue will soften to about 3.5%; a growing portion of the sector will have revenue growth under 3% » Constrained growth in multiple key revenue streams, including tuition, research and state appropriations » Expense growth of almost 4% » Uncertainty at the federal level over potential policy changes What could change outlook to stable What could change outlook to positive » An annual change in aggregate operating revenue in our rated sample of at least 3%, representing real growth in a low inflation environment, and outpacing expense growth » Ongoing solid student demand » Financial reserve strength » Revenue growth well in excess of inflation expectations and expense growth Note: A negative sector outlook indicates our view that fundamental credit conditions will worsen. A positive outlook indicates that we expect fundamental credit conditions to improve. A stable sector outlook indicates that conditions are not expected to change significantly. Since sector outlooks represent our forward looking view on conditions that factor into ratings, a negative (positive) outlook indicates that negative (positive) rating actions are more likely on average.

Net tuition revenue will decline for a rising number of public universities % change in net tuition revenue by type of public university % with declining NTR Moderate Sized Public University Small Public University Comprehensive Public University 25% 6% 5% 20% 4% 15% 3% 10% 2% 5% 1% 0% 0% 2013 2014 2015 2016 2017 Est. 2018 For. “Est.” indicates our estimated data based on preliminary information. “For.” indicates our forecasted data. Source: Moody's Investors Service

Slowdown & Decline of High School Graduates Public & Nonpublic Graduates (Millions) 812K Midwest* 775K 717K * 5% of graduates included for College Board Midwest are in another region in most WICHE materials (ND & SD = West, WV = South)

Midwest Declines Driven by Top 3 States MI, 124K OH, 137K Declines Driven by Top 3 States Other States Steady or Brief New High Before ‘Birth Dearth’ IL 152K NE, 25K MN, 63K WI, 62K IN, 68K OH, 110K IL, 125K MI, 88K Total number of graduates plotted relative to high point during projected period (2013-2031) Is there a new high after 2012?  No  Yes

IU Revenues: 2.9% CAGR Over 10 Years Auxiliary Enterprises and State Appropriations have experienced flat revenues over the past 10 years with a CAGR of 0.5% for Auxiliary Enterprises and 0.6% for State Appropriations These categories make up the revenue growth: Grants and Contracts with 1.7% 10- year CAGR and relatively flat over the past 5 years Other Revenues and Gifts with 10-year CAGR of 4.5% Tuition & Fees (net) with 10-year CAGR of 5.6% and a CAGR of 3.1% over the past 5 years Investment income revenues have varied over the past 10 years subject to market forces $ in Thousands 5

IU Expenses: 3.3% CAGR Over 10 Years Depreciation and Amortization Expense has had a CAGR of 3.4% over the past 10 years while the CAGR of Supplies and General Expenses was 2.8% over the same period Compensation and Benefits is the largest single expense category making up 66% of total expenses in 2017. The increases in this expense category have been relatively modest with CAGR of 3.3% over the past 10 years and 2.9% over the past 5 years Student Financial Aid Expense and Energy and Utilities expense categories experienced 10-year CAGR’s of 3.9% and 3.8%, respectively. The following slide contains additional detail for the combined Student Financial Aid Expense and Scholarship Discount & Allowance Student Financial Aid Energy and Utilities $ in Thousands Compensation and Benefits Depreciation and Amortization Supplies and General Expense Travel and Interest Expense

Observations “Aaa/AAA” Rating – Well run organization RCM Model – Promotes innovation and change President – Visionary leader Future – Balance aspirations with financial realities New paradigm – low tuition/rate increases, low revenue overall revenue growth Enrollment Cliff – Need for long term (5-10) year planning and new strategies Two Year Budgeting – Goal is shifting focus from constructing and managing budgets to long-term planning and innovation.  Numerous budget planning process improvements will free time and streamline the budget calendar.

2-Year Budgeting Proposal FY20 - FY21 Credit Hour and Other Income Projections Non-Instructional Fees Compensation Policy Budget Guidelines and Expense Allocations Current State Tuition State Appropriations Shift the focus from budget construction to budget planning Align financial planning with tuition and state revenue cycles

2-Year Budgeting – Block vs. Rolling FY20 FY21 FY22 FY23 Spring 2021 Spring 2019

Biennial Budget Presentations Long Session (Assumptions) Short Session (Adjustments)

What’s in, what’s out?   * Task Moving to 2-year Unchanged Discontinued Fall Analysis  Non-Instructional Fees Credit Hour Projections UA Budget Conferences Incidental Income UA Tax Calculation  * Salary Policy Benefit Rates Spring/University Analysis Budget Construction Load Presentation to BOT Provision for UA benefit increases will be estimated Spring Analysis will continue to be completed annually, but will require projections beyond current fiscal year

Computing Systems & Data Analysis Samuel Adams Associate Vice President Budget & Planning Laura Hudson Administrative Coordinator Gary Palmer Database Manager & Team Lead Alicia Robertson Associate Director University Budget Operations Brian Moellers Associate Director Financial Analysis & Planning T. Michael Ford Project Manager John Burgoon Budget Systems Manager Greg Alter Sr. Budget Analyst Melissa Johnson Payroll Manager Dan Nichols Sr. Financial Analyst Nathan Schroder Institutional Reporting Manager Theo Wu Business Analyst Carol Ball Business Analyst Computing Systems & Data Analysis University Budget Operations Mary Lou Kessler Business Analyst Vicky Myers Business Analyst Financial Analysis & Planning Project Management

Computing Systems & Data Analysis University Budget Operations Budget Application Development & Support UBO Desktop Support UBO Database Management Data Analysis Institutional Reporting University Budget Operations Budget Construction, Calendar, and Guidelines Incidental Income Regional Campus Liaison Endowment and Match Program Support Batch Processing & Allocations Fiscal Year-End Expense Allocations & Batch Processing Budget & Administrative Support Executive VP for Academic Affairs President’ Office Board of Trustees Bicentennial Campaign Conferences & Events Government Relations Financial Analysis & Planning Financial Projections & Modelling State Appropriations Credit Hour Projections Ad hoc financial analysis University Administration Tax Budget Conferences Project Management Strategic Planning UBO Website Content Manager Training & Events Planning UBO Special Projects

Questions?