1. Presentation to Faculty Task Force on Data Analysis Strategic Budget Review March 23, 2010

2. Themes: - Budget Gap:$13.0 million - Tuition Dependent Institution - Labor Intense Enterprise - Multi-Year Solution (1-3 years)  Revenue Enhancements  Longer it takes to find permanent solutions, the longer the short-term non-sustainable actions must continue. Strategic Budget Review 1

3. o Last year, a financial crisis and steep recession triggered a serious deficit—much larger than in previous years. o A different budget challenge this year o Transition away from temporary budget solutions to a sustainable financial model Overview of our Financial Challenge 2

4. o About $13 million, or roughly 10% of our overall budget o A budget model that includes competitive pay increases, restores the retirement contribution and returns the endowment spending rate to 5%, given our enrollment and revenue projections, leaves us $13 million short. University Faces a Persistent Deficit Problem (Structural Deficit) 3

5. o Not just a cyclical problem—when economy recovers, our budget still will be in deficit o This is a much larger deficit than those faced in previous years. This is not just “business as usual.” Status Quo Is Not A Good Option, Otherwise We Will Face the Same Deficit Problem Year After Year 4

6. Multi-Year Budget Strategy o FY 08/09 Belt tightening Use of one-time revenue sources Minimize impact on University Community Use this time to effectively plan for the future o FY 09/10 Maintain “market share” (enrollment) Short term budget balancing actions Adjust institution’s overall expenditure profile by 7% to 10% Develop plan to address structural deficit challenge o FY 10/11 to FY 13/14 Close structural gap through combination of implementing permanent spending reductions and realizing revenue gains 5

7. How did the persistent, structural deficit develop? o Confluence of several factors o Recession and financial market crisis o But also a result of trends that started developing over several years 6

8. o School of Business revenue began falling in 2002 o Offset by high growth rates in College o School of Education experienced strong expansion Rate of Growth in Net Tuition Revenue Slowed Considerably in 2005 7

9. o Total enrollment has declined since 2005 o Revenue growth becomes dependent upon tuition increases alone In 2005, University and College Enrollment Peaked 8

10. o Centennial Campaign o Stock market boom Between 2005 and 2008, Endowment Growth Offsets Enrollment and Tuition Plateau 9

11. After 2005, Expenditures Continue to Grow o Competition for students: “arms race” o Continued investment in personnel, facilities, and technology o Government mandates and legal requirements 10

12. Financial Crisis and Recession Revealed and Worsened Revenue Trends o Net revenue rises 1-2 percent o All three units are impacted o This time, however, enrollment decline is reinforced by endowment decline 11

13. o A combination of temporary and permanent adjustments o Reduction in admin/staff expenditures of $2.9 million. Closed 42 positions, including the lay off of 28 employees. o Reduction in non-personnel expenditures of $2.2 million o Salary freeze o Raised endowment draw to 8.1% o Reduced retirement contribution rate to 5% Our Immediate Response to Last Year’s Budget Crisis 12

14. o Long-term solutions required beginning this year o Started systematic review of structural issues Identified size of problem, sources, and targets for changes All in preparation to develop solutions Sustainable Actions 13

15. o Period of rapid change o Demographics o Competition o Weakened government support, increased government oversight o Pricing Pressure Challenges Will Grow in Future 14

16. 15 REVENUE 15

17. 16 Revenue Net of Financial Aid FY 2009/10 (Original Budget) 16

18. UNIVERSITY OF REDLANDS Full Time Tuition Equivalents (FTTE)

19. 18 (In Thousands) FY 01/02FY 02/03FY 03/04FY 04/05FY 05/06FY 06/07FY 07/08FY 08/09FY 09/10FY 10/11 College of Arts & Sciences $ 25,331 $ 29,156 $ 32,526 $ 36,764 $ 38,875 $ 40,033 $ 42,134 $ 43,545 $ 43,343 $ 42,996 School of Business $ 16,251 $ 14,865 $ 15,166 $ 15,855 $ 14,589 $ 12,407 $ 13,825 $ 16,154 $ 17,349 $ 19,822 School of Education $ 3,127 $ 3,856 $ 4,578 $ 4,641 $ 5,272 $ 6,184 $ 7,334 $ 7,086 $ 7,214 $ 6,727 Net Tuition & Fees $44,709 $47,877 $52,270 $57,260 $58,736 $58,624 $63,293 $66,785 $67,906 $69,545 Endowment Income $ 2,643 $ 2,223 $ 1,721 $ 2,310 $ 3,019 $ 4,325 $ 6,096 $ 6,750 $ 8,729 $ 4,848 % Change in Revenue FY 02/03FY 03/04FY 04/05FY 05/06FY 06/07FY 07/08FY 08/09FY 09/10FY 10/11 College of Arts & Sciences15.1%11.6%13.0%5.7%3.0%5.2%3.3%-0.5%-0.8% School of Business-8.5%2.0%4.5%-8.0%-15.0%11.4%16.8%7.4%14.3% School of Education23.3%18.7%1.4%13.6%17.3%18.6%-3.4%1.8%-6.8% Net Tuition & Fees7.1%9.2%9.5%2.6%-0.2%8.0%5.5%1.7%2.4% Endowment Income-15.9%-22.6%34.2%30.7%43.3%40.9%10.7%29.3%-44.5% Net Revenue 18

20. UNIVERSITY OF REDLANDS Net Revenue FY 06/07 through FY 10/11 Revised*Preliminary Actual% % %Budget% FY 06/07ChangeFY 07/08ChangeFY 08/09ChangeFY 09/10ChangeFY 10/11 Tuition & Fees $ 86,432,8199.3% $ 94,465,7796.0% $ 100,176,5933.5% $ 103,702,0934.6% $ 108,425,433 Room & Board 15,423,0196.8% 16,472,4883.2% 17,007,243-1.2% 16,807,5366.2% 17,846,762 Budget Support Gifts 2,287,608-27.0% 1,670,820-14.3% 1,432,57729.1% 1,850,0000.0% 1,850,000 Endowment Income 4,325,23440.9% 6,095,85510.7% 6,749,56729.3% 8,728,606-44.5% 4,848,344 Conference Programs 976,8260.8% 984,408-25.0% 738,1408.1% 798,00016.3% 928,000 Other 2,988,5037.1% 3,201,76074.4% 5,583,250-55.7% 2,474,943-15.4% 2,093,942 Gross Revenue $ 112,434,0099.3% $ 122,891,1107.2% $ 131,687,3702.0% $ 134,361,1781.2% $ 135,992,481 Scholarships & Financial Aid (27,807,999)12.1% (31,172,960)7.1% (33,391,601)7.2% (35,795,376)6.5% (38,114,009) Net Revenue $ 84,626,0108.4% $ 91,718,1507.2% $ 98,295,7690.3% $ 98,565,802-0.7% $ 97,878,472 * Endowment Spending Rate shown at 5%: 1% = $1.1 M *

21. UNIVERSITY OF REDLANDS Change in Net Student Revenue FY 02/03 through FY 10/11 * Projected

22. 21 Financial Aid Expenditures and College Undergraduate Discount Rate (right axis) 21

23. 22 Comparison of Endowment FMV and Payout for Fiscal Year ($M) 22

24. UNIVERSITY OF REDLANDS Total Gift Income FY 04/05 through FY 08/09

25. 24 EXPENDITURES 24

26. Budgeted Expenses FY 2009/10 (Budget) Total $97,705,916 Approved budget as of July 2009 Non-Personnel (43%) Personnel All Personnel Instruction & Academic Support Institutional Support Student Services Auxiliary Other 25

27. Personnel Expenditures 26

28. 27 Debt Service and Debt Service as a % of Operations Budget (right axis) A3 MOODY’S CREDIT RATING Portion of debt paid by unrestricted trust terminations and bequests went from $1.3M in FY05 to $250K in FY09, following a policy to move Redlands away from dependence on that source. 27

29. 28 Capital Expenditure History FY 1969/70 through FY 2008/09 (five-year periods) 28

31. Responses in FY10 Redlands dealt with a total $13.8M budget gap for FY10 a combination of moves, many of which are unsustainable or only partially sustainable. Responses that should be partially sustainable Staff reduction in force $2.9M Reduction in support costs $1.9M Unsustainable responses Excess endowment spending $3.8M Elimination of pay increases $1.8M Reduction of retirement contribution from 9% to 5%$1.3M Deferred capital and IT spending $780K Total partially or completely unsustainable responses $12.5M 30

32. Change in Revised*PreliminaryPercentage Budget Netof Gross FY 09/10%FY 10/11%ChangeRevenue Tuition & Fees $ 103,702,09377.2% $ 108,425,43379.7% $ 4,723,3402.5% Room & Board 16,807,53612.5% 17,846,76213.1% 1,039,2260.6% Budget Support Gifts 1,850,0001.4% 1,850,0001.4% -0.0% Endowment Income 8,728,6066.5% 4,848,3443.6% (3,880,262)-2.9% Conference Programs 798,0000.6% 928,0000.7% 130,0000.1% Other 2,474,9431.8% 2,093,9421.5% (381,001)-0.3% Gross Revenue $ 134,361,178100.0% $ 135,992,481100.0% $ 1,631,3030.0% Scholarships & Financial Aid (35,795,376)26.6% (38,114,009)28.0% (2,318,633)1.4% Net Revenue $ 98,565,80273.4% 97,878,47272.0% $ (687,330)-1.4% Personnel Expenditures $ 53,959,02640.2% 59,101,28343.5% $ 5,142,2573.3% Non-Personnel Expenditures $ 42,648,51431.7% 49,349,24036.3% $ 6,700,7264.5% Contingencies & Reserves $ 1,958,2621.5% 2,792,2622.1% $ 834,0000.6% Net Deficit $ - (13,364,313)-9.8% $ (13,364,313)-9.8% % = Percent of gross revenue UNIVERSITY OF REDLANDS Summary Budget FY 09/10 and FY 10/11 * Endowment Spending Rate shown at 5%: 1% = $1.1 M *

33. Additional Pressures in Coming Years o Deferred Maintenance: Sightlines identified critical needs of $3-5M per year for 5 years o Endowment: stock market collapse flows through calculations for payout in future years--$1M gap by FY13 o Marketing: Critical investment to enhance revenue and market position. 32

34. Targets for Solution o Combination of revenue enhancements and expense reductions (50/50 Approach) Revenue Target Tuition Enhancements $5,500,000 Expenditure Reduction Targets Academic Programs$3,700,000 Student Life Programs$ 350,000 Institutional$2,230,000 $6,280,000 Combined Total $11,780,000 o Developing goals for School of Continuing Studies, giving and other revenue sources 33

35. Targets for Academic Programs Expenditure Reduction Targets College of Arts & Sciences$2,500,000 School of Business$1,000,000 School of Education$ 200,000 Total$3,700,000 34

36. Previous Expenditure Reductions, FY 2009 - 2010 Expenditure Reductions (Net) Academic Programs$700,000 Student Life Programs 500,000 Institutional3,440,000 Total $4,640,000 35

37. o Likely will continue with 5% retirement contribution rate o No salary increases (except faculty promotions) o Offer another early retirement package o Continue to hold or freeze certain positions o Continued higher endowment draw will require laying out a path to balanced budget FY 10/11 Budget Similar to Last Year 36

38. Reconciliation 37 Phase I Reductions (FY 2009-2010) (Net)$4.64 million Phase II Reductions (FY 2010-2011)$6.28 million Total Expenditure Reductions$10.92 million Revenue Enhancements $ 5.50 million Total$16.42 million Expenditure Growth($ 3.05 million) Revised Total$13.37 million