1. Human Resources Summit – Fiscal Affairs Update 1 Indiana University Fiscal Affairs Update September 25, 2013

2. Human Resources Summit – Fiscal Affairs Update 2 Overview  Higher Education Headwinds  IU Financial Trends  Long Term Planning  Initiatives  Upsides

3. Human Resources Summit – Fiscal Affairs Update 3  Strong Financial History  Moody’s Upgrade to Aaa Post Financial Crisis  Continued Focus on  Business Analytics  Cost Containment  Alternative Revenue Streams  Not Immune to Pressures of the “New Normal”  Higher Education Headwinds  Significant pressures on tuition rate increases  Decreased household wealth  National focus on student debt levels and student loan defaults  Downward trend in state appropriation  Declines in research spending  Escalated regulatory and accreditation risk  Investment volatility  Health Care Exposure Financial Backdrop

4. Human Resources Summit – Fiscal Affairs Update 4  Rising Student Loan Burden and Defaults Taint Perception  Nationally, Student Loan Defaults Have Doubled Since 2003 (from 4.5% to 9.1%)  IU has Particular Issues on some of our Regional Campuses  Perception that Starting Salaries are not Keeping Pace with Cost of Degree  Getting a Degree Costs Less Than Perceived  Perception that Increased “Lifestyle Spending” is Attributable to Institutions of Higher Education Perception of a Higher Education Degree Stressed

5. Human Resources Summit – Fiscal Affairs Update 5  Federal Research Funding Slowing  Decline in award already granted  Decline in new awards  Sequestration cuts  Increased competition for the same “pie”  Private Foundation Funding “Lumpy”  Private Research Universities have had more Success Growing Grant Revenues in Past Two Years  But, for both public & private higher rated universities have fared better than lower rated  Larger research universities (>$3B) have fared better than smaller  Private Foundation Funding “Lumpy”  Research Expense Reductions Lag Cuts to Grant Revenue Growth Research Funding Stressed

6. Human Resources Summit – Fiscal Affairs Update 6  Operating Funds  Concentration in Fixed Income due to State Constitution  Rising Interest Rate Environment will Stress Returns  Endowment  Volatility in Investment Returns  Gift Revenue Difficult to Predict Investment Volatility

7. Human Resources Summit – Fiscal Affairs Update 7  Rising Health Care Costs  Indiana – One of Unhealthiest States  Uncertainty Over Implementation of Health Care Reform  Indirect Exposure to IU Health  Health of IU Health Business Model will Impact School of Medicine  Reimbursement Pressure from all Payers  Limited Rate Increases and Potential Funding Cuts from Medicare and Medicaid  Potential Decrease to Graduate Medical Education Funding Health Care Exposure

8. Human Resources Summit – Fiscal Affairs Update 8 Trends Are Unsustainable

9. Human Resources Summit – Fiscal Affairs Update 9 Increase Focus on Governance & Management to Provide Long Term Sustainability Moody’s Investors Services, July 2013  Must Strive to Increase Cost Efficiency in Light of Decelerating/ Stressed Revenue  Hallmarks of Governance & Management  Board & Senior Management Composition  Oversight & Disclosure Practices  Short – and Long- Term Planning  Self-Assessment and Benchmarking  Government Relations

10. Human Resources Summit – Fiscal Affairs Update 10 IU Long Term Financial Model Dashboard and Strategic Ratios

11. Human Resources Summit – Fiscal Affairs Update 11  Internal, Cross-functional Consulting Team  Public-private partnerships/ asset monetizations  Functional reviews  Identify new revenue streams  Managed Print Services  Energy  Cash efficiency  Investment returns  Capital structure Initiatives

12. Human Resources Summit – Fiscal Affairs Update 12 Enough? - Higher Education as a National Right - Extended 0% Tuition Increase - Further Cuts in Federal Spending - Further Cuts in State Appropriation What would we do?

13. Human Resources Summit – Fiscal Affairs Update 13  Current Position of Financial Strength  Fundamental Demand for Higher Education is Still High  Stronger Earnings by Educational Attainment  Unemployment Inversely Related to Educational Attainment  Recent graduates are having a tougher time finding jobs  Global Economy Drives Demand for Educated Worker  No Viable Substitute for a Higher Education Degree  Strong Demand for IU Brand  Relatively Speaking, Indiana is Financially Healthy and the Recent Tone at the State has been Positive Upsides