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FY 2011 Assessment of Financial Strength Arizona Board of Regents Enterprise Initiatives, Finance and Strategic Planning Committee December 1, 2011 Finance Committee Item #1 December 1, 2011
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Summary of FY 2010-11 Fiscal Performance Enrollments continue to be strong – Freshmen – Community College Transfers – Increase in Retention Balance Sheets improved at all three institutions – Increase in Net Assets – Balance sheet liquidity at ASU & UA remains thin E & G Revenue and Expense Trends – 2011 compared to 2010 – increases in total expenditures, and expenses per FTE – Continued to show productivity gains from 2008 The percentage of state support to total revenue continued to decline
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University Annual Financial Statements – Net Assets All three universities experienced positive growth in their net assets SCHEDULE OF TOTAL NET ASSETS (in millions) FY 2010FY 2011Change% Change ASU $ 1,036.8 $ 1,130.4 $ 93.69% NAU $ 368.8 $ 417.9 $ 49.113% UA $ 973.6 $ 1,069.1 $ 95.510% SYSTEM TOTAL $ 2,379.2 $ 2,617.4 $ 238.2 10%
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Drivers of Increases in Net Assets Reducing Costs and Restructuring Accelerated growth in tuition and fees and research revenue Improved financial markets – increase in investment income
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Education & General Revenue and Expense Trends Total revenues and expenditures (net of scholarship expenses) both increased in FY 2011 – Total system revenues increased by $104M or 5.2% – Total system expenditures increased by $132M or 6.9% – Enrollment growth – 5,210 FTE or 4.2% FY 2011 vs. FY 2008 – Revenues increased $196M or 9.8% – Expenses increased $113M or 5.9% – Enrollment growth – 16,708 or 14.7% – FTE Basis Revenues decreased $(640) per student or (3.8%) Expenses decreased $(1,327) per student or (7.8%) Scholarship expenses continue to increase
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Composition of the University’s Revenue FY 2011 RATIOS ASUNAUUA 23%30%20%
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Composition of the University’s Revenue FY 2011 RATIOS ASUNAUUA 38%32%23%
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Composition of the University’s Revenue FY 2011 RATIOS ASUNAUUA 26%23%41%
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Ratios to Measure Financial Strength of the Balance Sheet Ratios 7 & 8 measure flexibility Ratio 9 measures debt service Ratios 7, 8 & 9 are key ratios used by rating agencies to determine bond ratings
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Rating Agencies Independent fiscal analysis of universities Impact ability to borrow and levels of debt service 5 Factors in Determining Rating Assessment – Market Position – Operating Performance – Balance Sheet and Capital Investment – Governance and Management – Legal Security and Debt Structure
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University Bond Ratings ASUNAUUA Moody's SPEED Revenue BondsA1A2Aa3 System Revenue BondsAa3A1Aa2 OutlookStable Negative S & P SPEED Revenue BondsAA-A System Revenue BondsAAA+AA- OutlookNegativeStable
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Reasons for Negative Outlook Ongoing reductions in State Appropriations Political and market pressure to limit tuition increases Thin unrestricted liquidity to cover expenses
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What Could Move the Rating Up Significant growth of liquid financial resources Stabilization of state funding Improved credit profile of the state
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What Could Move the Rating Down Declines in unrestricted liquidity and/or further deterioration of financial strength ratios Inability to manage through a challenging state funding environment Additional borrowing without commensurate growth of financial resources and revenues to pay debt service Deterioration of the credit quality of the State
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Reserve Policy Requested by Board CFO’s examining options Liquidity – ASU has a ratio of 22.3%, or less than 12 weeks of liquid assets to cover expenses – UA has a ratio of 18.8%, or approximately 10 weeks of liquid assets to cover expenses – NAU has a healthy liquidity ratio of 44.8% or approximately 23 weeks of liquid assets to cover expenses Delicate Balance
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