Prepared by VPFA & Provost’s Office September 2018 UNH Financial Update Prepared by VPFA & Provost’s Office September 2018

Today’s Goals Review of FY18 and financial history of UNH Explanation of FY19 planning and initial budget Lessons learned Plan going forward FY19 FY20 PLANNING CDC

Revenue and Expenditures CDC Story- historically came in over budget on revenue and under budget on expense. Story started to change in FY 3% OM requirement started in FY17 RCM impact- resolving RCM funding gap since FY12, plus growth in central admin, causing shift from units (where funds drop to bottom line) to central admin (where funds are needed- e.g., marketing & branding, etc.) Budget vs actual variance- caveats when looking at revenue and expense separately; connected for grants/Pell See separate KS analysis for details RCM Funding Gap- per FY15 RCM review, expected gap to be resolved by FY21; not currently on target to meet this goal ($5.7M off from target for FY19- plan was deficit of $10.3M and original budget shows deficit of $16.0M) Going back to pre-FY13 is a bit of a mess- not all funds budgeting, OM calculation different, issues with FY10 OM, etc 3

Revenue and Expenditures FY OPERATING MARGIN BUDGET ACTUAL CDC Story- historically came in over budget on revenue and under budget on expense. Story started to change in FY 3% OM requirement started in FY17 RCM impact- resolving RCM funding gap since FY12, plus growth in central admin, causing shift from units (where funds drop to bottom line) to central admin (where funds are needed- e.g., marketing & branding, etc.) Budget vs actual variance- caveats when looking at revenue and expense separately; connected for grants/Pell See separate KS analysis for details RCM Funding Gap- per FY15 RCM review, expected gap to be resolved by FY21; not currently on target to meet this goal ($5.7M off from target for FY19- plan was deficit of $10.3M and original budget shows deficit of $16.0M) Going back to pre-FY13 is a bit of a mess- not all funds budgeting, OM calculation different, issues with FY10 OM, etc FY13 0.9% 4.2% FY14 1.2% 3.9% FY15 2.4% 4.2% FY16 1.9% 4.0% FY17 3.0% 2.6% FY18 3.0% 2.1% FY19 3.0% 4

Financial Metrics OPERATING MARGIN (OM) Measure of financial stability; used to fund strategic and capital investments (e.g, Hamilton Smith, Biological Sciences, CaPS). Excluded from revenue: endowment gifts and market returns, state capital appropriation and gifts for capital projects Excluded from expense: net internal transfers (nets $0) Board requires 3% minimum for UNH; USNH overall at ~1.3% FY19. CDC Note: UNH does not transfer funds to subsidize the other campuses (KSC, PSU, GC) External rating agencies look at fiscal health indicators over a period of years, including some version of an operating margin calculation 5

UNRESTRICTED FINANCIAL RESOURCES (UFR) TO DEBT Financial Metrics UNRESTRICTED FINANCIAL RESOURCES (UFR) TO DEBT Measures the ability to cover external outstanding debt Board requires ≥ 50% for USNH in total; FY19 budget at 54% CDC Note: UNH does not transfer funds to subsidize the other campuses (KSC, PSU, GC) External rating agencies look at fiscal health indicators over a period of years, including some version of an operating margin calculation 6

UNH Budget Categories 7 CDC Reminder- non operating revenue includes state capital, endowment gifts, endowment returns and gifts for capital projects; non operating expense is transfers and won’t completely net $0 for UNH because of IFB transfers to USNH. 7

Units held positions vacant, reduced supplies & services FY18 Final Results OPERATING MARGIN 2.1% 3.0% vs. Wayne Every 1% change in discount rate ~$3M Depreciation + Interest= $0 increase in total (depreciation increased $2.0M, interest decreased $2.0M) Utilities +$.7M (8.6%) USNH Support +$.4M (6.4%) FINAL BUDGET ORIGINAL BUDGET CHALLENGING YEAR Units held positions vacant, reduced supplies & services 8

FY17-18 OPERATING REVENUE GROWTH FY18 Final Results FY17-18 OPERATING REVENUE GROWTH Wayne Every 1% change in discount rate ~$3M Depreciation + Interest= $0 increase in total (depreciation increased $2.0M, interest decreased $2.0M) Utilities +$.7M (8.6%) USNH Support +$.4M (6.4%) 2.5% (+13.1M) (EXCLUDING GRANTS) 9

FY17-18 OPERATING REVENUE GROWTH +13.9M 2.5% (+13.1M) GROSS TUITION +9.9M (EXCLUDING GRANTS) AID +2.1% (+4.0M) +3.3% (+$.7M) +10.1% (+$1.5M) Wayne Every 1% change in discount rate ~$3M Depreciation + Interest= $0 increase in total (depreciation increased $2.0M, interest decreased $2.0M) Utilities +$.7M (8.6%) USNH Support +$.4M (6.4%) UNDERGRADUATE NET TUITION GRADUATE NET TUITION OTHER STUDENT FEES +13.8% (+$3.6M) +$3.3M NON-CAPITAL GIFTS AND ENDOWMENT INCOME USED IN OPERATIONS OTHER SOURCES (includes F&A cost recovery, auxiliary revenue, other operating and investment income) 10

FY17-18 OPERATING EXPENSE GROWTH 3.3% ($16.8M) (EXCLUDING GRANTS) +4.2% (+$13.5M) ~$5.0M +1.9% (+$2.1M) Wayne Every 1% change in discount rate ~$3M Depreciation + Interest= $0 increase in total (depreciation increased $2.0M, interest decreased $2.0M) Utilities +$.7M (8.6%) USNH Support +$.4M (6.4%) EMPLOYEE COMP related to salary increases; fringe benefit increase from 39.0% to 39.5%; shift from non-benefitted to benefitted positions SUPPLIES & SERVICES +7.6% ($1.2M) 28.3% —> 29.7% OTHER OPERATING EXPENSES (USNH AND UTILITIES) DURHAM UNDERGRADUATE DISCOUNT RATE INCREASED 11 (from FY17-18)

OPERATING EXPENSE GROWTH ≤ OPERATING REVENUE GROWTH FY19 Budget BOARD PARAMETERS Wayne OPERATING EXPENSE GROWTH ≤ OPERATING REVENUE GROWTH 3% DATE OM 4/30/18 ($14.1M) 5/25/18 ($3.5M) 5/29/18 $0M 6/4/18 $19.0M OM FOR UNH 12

FY19 Budget BOARD PARAMETERS Wayne Initial budget assumed 2.5% growth of operating revenue Short window to make significant changes Many RC units projected use of reserves initially 13

FY19 Budget — Process to Achieve 3% OM 14

$0.5M $0.5M $2.0M $2.0M $2.0M $2.0M $1.4M $1.3M $1.0M $1.0M $1.0M NET IMPROVEMENTS TO OM ACTUAL ADJUSTMENTS 5/30-6/4 OM IMPROVEMENTS (R= REVENUE, E= EXPENSE) JUSTIFICATION F&A COST RECOVERY (R) $0.5M $0.5M Increase the estimated impact of EPSCoR, IMAPS UNDERGRAD NET TUITION (R) $2.0M $2.0M Reduction in discount rate estimates (HCRC) Increased retention efforts — Fall to Spring (normally ~100 student melt) and increase in spring term enrollments UNDERGRAD NET TUITION (R) $2.0M $2.0M $0.2M Law due to increased enrollments and lower discount rate; $1M in academic schools/colleges — more focused marketing with existing funds. $0.15M reduction in graduate entitlement aid (mostly National Guard) GRAD NET TUITION (R) $1.4M $1.3M NON CAPITAL GIFTS (R) $1.0M $1.0M Stretch goal Need list from Business Affairs & Facilities. Savings to come from not doing smaller projects, where there is a direct OM impact; focus on larger, capital projects where expenses get spread out over 10+ years in the form of depreciation. CAPITAL PROJECTS DIRECT EXPENSE (E) $1.0M $1.0M SUPPLIES (E) $6.1M $3.6M Actual adjustments based on unit progress between 5/30 and 6/4. EMPLOYEE COMP $5.0M $7.8M Budgets for most vacant positions have been removed. SUBTOTAL — OM IMPROVEMENTS $19.0M $19.2M** OM = 3% 15

FY19 Budget FY19 GOING FORWARD Wayne Need to keep working to make sure revenue projections hold Working to identify new revenue which can be strategically invested 3% OM for UNH must be monitored Retention, January admission, Cost savings through synergies 16

FY19 Budget FY19 GOING FORWARD Wayne Seeking to identify strategic investment pool Working to right size financially underperforming units Reduce the number or projections to save staff time/resources Communicate about the process and parameters more effectively with the campus Cost savings through structural changes being reviewed 17

FY20 Budget LESSONS LEARNED Need to begin planning now Need to develop stronger revenue projection on which to build budgets Communicate early and often regarding campus wide expenses Work with Board to build trust and move some categories out of the OM Identify and coordinate revenue generation strategies and look for expense synergies Wayne 18

FY20 Budget Planning Calendar – All preliminary undergraduate goals set with associate deans – Review of all compiled goals with ASAC, Dean’s Council, EC FY20 Budget Planning Calendar AUG – review of all compiled goals by Provost and Deans, finalized by EC SEPT INITIAL ENROLLMENT PLANNING WITH EM AND COLLEGES – Financial aid scenarios finalized – Set budget assumptions & parameters, including salary increase guidelines, RCM, retention rates, student Fees SET BUDGET ASSUMPTIONS AND PARAMETERS OCT GRAD ENROLLMENT PLANNING IN PROCESS – Freshman awards roll out NOV Wayne Open- what about graduate enrollment planning? – Dean’s and RC unit head develop preliminary budgets – Tuition, fee and room & board approval STRATEGIC PRIORITIES JAN MARCH / APRIL – Draft budget review by Dean’s Council and EC DRAFT BUDGET – Freshman deposits due MAY – Present complete draft budget to Board of Trustees JUNE 19