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

2. 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

3. 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

4. Revenue and ExpendituresFY
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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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)

12. 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

13. 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

14. FY19 Budget — Process to Achieve 3% OM14

15. $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

16. 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

17. 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

18. 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

19. 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