Financial Analysis of the University of Minnesota 2011

7/29/2019 Financial Analysis of the University of Minnesota 2011

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Actual Metrics: Students of ColorSource: Office of Ins@tu@onal Research

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The BoJom Line The State Appropria2on is 1% of total revenues There will be a drop of 8% in the State appropria2on This is a drop of 1.7% in total revenues. Dollar drop of $46 million

What we get are mee2ngs discussing what academiccuts are needed (see next slide for Presidentsrecommenda2ons in June of 011)

Are furloughs/pay freezes necessary in an ins2tu2on

that has over $600 million of unrestricted reserves,had $175 million prot, $180 million of opera2ng cashows in 010? NO! This conclusion will be conrmedwhen we examine administra2ve costs.

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0*,1%.2,&/32!456786 !986:;


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What Should Be Done? The appropria@on is lower, but the magnitude of the cuts, given the

overall university, is not debilita@ng. First, given the level of the reduc@on and the huge reserves, are cuts

really necessary? There are over $600 million of unrestricted netassets. Instead of talking budget cuts, lets talk about reserve levels.

Second, if cuts are to be made, the expense analysis will demonstratethat cuts should be made to administra@on

Third, tui@on increases can be made much lower. Fourth, the State is not broke, as we will see - stop using the State as

an excuse to make cuts. Yes, the appropria@on is lower. But both

the State and University are in strong nancial condi@on, asconrmed by basic ra@o analysis and the outside credit ra@ngagencies:

Reminder: The State Appropria@on is 21% of total revenue for theUniversity of Minnesota

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State of Minnesota Moodys gives the state an Aa1 ra2ng ( nd highest) Standard & Poors dropped the ra2ng to AA+ from AAA. AA+

is the nd highest ra2ng. This is what S&P did to the UnitedStates.

15 States have AAA ra2ngs from Moodys (AK, DE, GA, IN , IA,MD, MO, NM, NC, SC, TN, TX, UT, T, A). Wisconsin is at Aa

The State of Minnesota has issues with the budget expectedfuture revenues are less than expected future expenses.However, A budget gap is NOT the same as the state being

broke . Stadium for the ikings? If 4-0 instead of 0-4?

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S l t d St t B d t G C d t Oth St t


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Selected State Budget Gaps Compared to Other StatesSource: Center on Budget and Policy Priori@es, une 17, 2011

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Minnesota Management & Budget:


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Minnesota Management & Budget:September 2011 Economic Update

Headline: FY 011 Revenues $355 Million AboveForecast; FY 01 Currently $93 Million Short.

The $355 million is .3% above forecast The $93 million short is for only months, and is 4.4%

below the -month es2mate. Most of the increase in 011 came from

individual income taxes being larger thanexpected

The economy is expected to grow less than wasexpected in the February 011 revenue forecast(last big forecast for the state)

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Mi t M g t d B dg t


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Minnesota Management and BudgetFebruary 2011 Forecast

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State of Minnesota Tax Distribu@onSource: 2010 State of Michigan Comprehensive Annual Financial Report

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Minnesota Management and BudgetFebruary 2011 Forecast

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S Hi h Ed A i @


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State Higher Ed Appropria@onsSource: State Higher Educa@on Execu@ve Officers (SHEEO): April 2011

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Minnesota has lower higher educa@on appropria@ons than other states The change in appropria@ons has been worse in Minnesota than other

states

Higher Educa@on Appropria@on as % of Tax Revenues


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Higher Educa@on Appropria@on as % of Tax RevenuesSource: SHEEO

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Average = 6.9%Minnesota = 5.9%

St t U l t R t


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State Unemployment RatesSource: Bureau of Labor Sta@s@cs

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Minnesota and Na@onal Unemployment Rates

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Is Minnesota a High Tax State?


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Is Minnesota a High Tax State?Source: Tax Founda@on, 2011Low Numbers = Low Taxes

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Ed @ l AJ i t


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Educa@onal AJainmentSource: US Census Bureau, 2008

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University of Minnesota Expense


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University of Minnesota ExpenseDistribu@on in Dollars

Source: Audited Financial Statements

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E Di ib @ P f T l


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Expense Distribu@on: Percent of Total

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Instruc@on and research relate to the core mission of the university Public service, academic support, student service, and ins@tu@onal

support are mostly administra@ve func@ons

Di i f E


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Discussion of Expenses No maJer what is going on, the percentage devoted

to instruc@on should never decline The next slides have generic descrip@ons of the

categories In general, public service, academic support, and

ins@tu@onal support, despite their names, are mostlyadministra@on

There was a signicant increase in ins@tu@onalsupport (upper administra@on). If this was justcategoriza@on changes, then the administra@on needs

to explain what occurred The following data will show that administra@ve costs

have been increasing much faster than instruc@onalcosts. This needs to be explained.

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G i O @ E C i


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Generic Opera@ng Expense Categories1) Instruc@on: Faculty, Lecturers, Adjuncts, Dept. Heads,

Dept. Secretaries, Graduate Assistants, DistanceEduca2on & off-campus sites) Research: Ins2tutes & Centers, Bioinforma2cs, Matching

Funds, New Faculty Awards, Faculty ResearchFellowships, Geospa2al Research

3) Public Service: Clinics and centers, radio sta2on,Marke2ng

4) Academic Support: College Deans, Library, Doctoral

Fellowships, Accredita2on (NCATE, Regional, etc.),Extended program administra2on, FacultyDevelopment Center, Honors Program, AcademicAdvising

Expense Categories (cont)


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Expense Categories (cont)

5) Ins@tu@onal Support: Presidents Office, Business & Finance,

University Communica2ons, Academic Affairs,Advancement, Public Safety, Legal Affairs, HumanResources, Governmental Rela2ons, EnrollmentManagement, Alumni Rela2ons

6) Student Services: Admissions Office, Financial Aid Office,

Office of the Registrar, Learning Center, Student Services,Campus Life, Student Center, Band7) Opera@on of the Plant: Physical Plant Opera2ons & Campus

Plan, Purchasing, Architect & Engineering, UniversityHouse, Grounds, U2li2es, Custodial

8) Auxiliary Expense: Dorms, dining, bookstore, athle@cs9) Scholarships: Funded, Graduate Fellowships10) Other: Debt Re2rement, Deprecia2on, Miscellaneous

Instruc@on Versus Administra@ve Costs:


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Instruc@on Versus Administra@ve Costs:2002 to 2010

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Admin Func@ons = Sum of ins@tu@onal support, academicsupport, student services, and public service

Source: Audited nancial statements

Percentage Changes in Major Expenses:


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Percentage Changes in Major Expenses:2002 to 2010

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Na@onal Report on Administra@ve Costs in Higher


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Na@onal Report on Administra@ve Costs in HigherEduca@on: Delta Project 2010

Source: Trends in College Spending, 1998- 008.Released July 8, 010.h p://www.deltacostproject.org/

The share of spending going to pay forinstruc2on has consistently declined whenrevenues decline, rela2ve to growth in spendingin academic and student support andadministra2on. This erosion persists even whenrevenues rebound, meaning that over 2me there

has been a gradual shi of resources away frominstruc2on and towards general administra2veand academic infrastructure.

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D lt P j t 2011 R t


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Delta Project: 2011 Report Released September 14, 011, analyzing 1999- 009 Unlike the across-the-board cuts seen in past recessions,public four-year ins2tu2ons maintained spending on

instruc2on and student services by shi ing spending awayfrom administra2on and deferring maintenance. Thisapproach indicates a more strategic approach to budget

cuts than in previous recessions. The report includes new data on employee compensa2on,showing large increases in part-2me and graduate teachingassistants and virtually at spending for employee salaries,but large increases in spending for benets. Unlike other

spending areas, where private ins2tu2ons outspent publicins2tu2ons, employee benets have increased signicantlymore in public ins2tu2ons than in private ins2tu2ons

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The Fall of the Faculty: The Rise of the All-


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yAdministra@ve University and Why it MaJers

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Benjamin Ginsberg of Johns Hopkins, July 011 From Inside Higher Educa2on, 7/14/ 011:Ginsberg bemoans the expansion over the past 30

years of what he calls "administra2ve blight" aspersonied by what he characterizes as an army of"deanlets " and " deanlings ."

By virtue of their sheer number and their managerialrather than academic orienta2on, Ginsberg argues,these administrators have served to marginalize thefaculty in carrying out tasks related to personnel and

curriculum that once sat squarely in their domain. In prose that is by turns piquant, sarcas2c and largely

dismissive of many administrators

Na@onal Trends In Spending:


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Na@onal Trends In Spending:Source: ohn Cur@s, Na@onal AAUP

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Administra@ve Salaries


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Administra@ve SalariesSource: mndaily.com, 1/18/2010

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Percentage Changes in Expense Items. 2002 to 2010


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g g pTwin Ci@es Only

Source: IPEDS

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IPEDS = Integrated Postsecondary Educa@on Data System Required Federal data from the US Department of Educa@on These results conrm the nancial statement results for the en@re System

A Different Expense Breakdown


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A Different Expense BreakdownSource: Notes to Audited Financial Statements

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63-64 cents of every dollar is spent on personnel, though thepercentage has declined

We will see that instruc@onal salaries are not the majority of

those costs

Breakdown of Instruc@onal Costs


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Breakdown of Instruc@onal CostsSource: Audited Financial Statements

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This is very troubling and revealing Revealing: instruc@onal salaries are less than 20% of total expenses Troubling: instruc@onal salaries are taking a bigger hit than other salaries Other costs include services and supplies

Breakdown of Research Costs


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Breakdown of Research CostsSource: Audited Financial Statements

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The commitment to research costs has remained steady, asthese costs have increased slightly more than total expenses

The % of total increased from 20.0% in 2006 to 21.6% in 2010

Peers: Instruc@onal Costs as Percent of Total Expenses


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Peers: Instruc@onal Costs as Percent of Total ExpensesSource: IPEDS 2009 Data

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Average without Minnesota = 30.7%Minnesota = 24.8 %

Peers: Ins@tu@onal Support as Percent of Total Expenses


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Source: IPEDS 2009 Data

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Average without Minnesota = 5.5%Minnesota is highest at 9.4%

Discussion of IPEDS Peer Data


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Discussion of IPEDS Peer Data IPEDS breakdown of expenses is not available for 010 yet

For the peers with hospital (pa2ent) costs, those costswere removed from total expenses (not the same asmedical school costs)

This data uses Minnesota Twin Ci2es only The peer ins2tu2ons were iden2ed by both the faculty

(Faculty Consulta2ve Commi ee Metrics andMeasurements Subcommi ee) and administra2on

To see if there was any categoriza2on issues, academicsupport was also examined. As a % of total expenses,Minnesota was the highest of the group at 15.9%; theaverage is 8.4%

UM spends less on instruc@on than most of its peers UM spends more on administra@on than all of its peers

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Faculty Salaries By Rank: Twin Ci@es


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Faculty Salaries By Rank: Twin Ci@es

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Source: Both IPEDS and AAUP Salary Survey

Faculty Salaries in Context


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Faculty Salaries in Context

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Faculty Salaries at Other Campuses


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Faculty Salaries at Other CampusesSource: 2010 AAUP Salary Survey

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Faculty Salary Increases vs. Tui@on Increases


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y y @vs. Ins@tu@onal Support: 2002 to 2011

Source: IPEDS 97

Faculty Salaries vs. Tui@on vs. Ins@tu@onal


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ySupport Graphically

(S&B = Salary and Benets)

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Faculty Salaries vs Peers


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Faculty Salaries vs. PeersSource: 2010 AAUP Salary Survey

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Number of Employees


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Source: Office of Ins@tu@onal ResearchEmployee Headcount October 2005 to 2010

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The inferences are the same if 2006 to 2010 is used, or if just TC is used It is informa@ve that the largest change is in the number of administrators Why is there such an increase in the number of administrators, while the

changes in full @me faculty and students is much smaller?

Notes on Employees


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Notes on Employees Faculty = Includes both tenured, tenure track, and non

tenure track employees, but excludes faculty in primarilyadministra2ve roles. This includes visi2ng, clinical, adjunct,and Regent's faculty.

Professional = Examples include Lecturer, ResearchAssociate, and Teaching Specialist

Administra2ve = Examples include Presidents, Chancellors,Deans, and Directors Civil Service = Excludes Bargaining Unit employees Bargaining Unit = Examples include AFSCME and Teamsters Graduate Assistants = Examples include Teaching Assistants

and Research Assistants Professionals in Training = Examples include Post-Doctoral

Associates, Medical Residents, and

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Class Size for Twin Ci@es


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@Source: Common Data Set

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There does seem to be a subtle shi in class size, especially in thenumber of very large classes

The next slide will analyze the percentage of sec@ons in each group

Class Size: Percent of Class Size Groups


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Source: Common Data Set

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Athle@c Overview


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Athle@c Overview

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Source for all athle@c data: EADA or Equity in Athle@cs Data Analysis from the US

Department of Educa@on

USA Today Database on Intercollegiate athle@cs

Athle@c Spending in Context


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Athle@c Spending in Context

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Breakdown of Athle@c Spending


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Source: EADA (Equity in Athle@cs Data Analysis)

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These are enormous increases in spending There may be different categoriza@on or accoun@ng issues with

football, but these type of increases need to be explained

Different Breakdown of Athle@c Spending( hl l )


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Source: EADA (Equity in Athle@cs Data Analysis)

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Breakdown of Expenses per USA Today


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p p y

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Discussion of Athle@c Expenses


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Discussion of Athle@c Expenses The evidence reveals very large increases in

spending over the last 5 years Administra2ve and coaches salaries have

increased much faster than faculty and othersalaries

Team travel, uniforms and equipment haveincreased a total of $4 million over 5 years. Wow. This needs to be explained and jus2ed Guarantees are payments from UM to lower-

division teams for home games at Minnesotathat . . .

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Athle@c Salaries in Context


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Athle@c Salaries in Context

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Athle@c Revenues


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Source: USA Today

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Discussion of Athle@c Revenues


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Discussion of Athle@c Revenues Direct ins@tu@onal support are generally payments from the core

University (though most administra@ons deny this). This payment diddecline, but was s@ll almost $3 million in 2010 $3.29 million is a lot of OTHER Both the EADA and USA Today report total revenues miraculously

equaling total expenses each year. There are some non-cash items

involved, and this makes interpreta@on of total revenues difficult. Total expenses in both years matched with both data sources; USA

Today includes indirect ins@tu@onal support, which EADA excludes,as do I. This is likely the alloca@on of the presidents @me and otherallocated costs.

EADA reports football revenues of $32 million for 2010; however,@cket revenues for all sports was only $21 million. There are otherrevenues, but it is not clear how that much gets allocated to football.

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The Big Ten Conference


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gSource: EADA (Equity in Athle@cs Data Analysis)

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Big Ten Football Revenues


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gSource: EADA (Equity in Athle@cs Data Analysis)

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Average w/o Minn. = $41.5 MMinnesota = $32.3 M

Conclusions


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The University of Minnesota is in strong nancial condi@on. Thisconclusion is supported by independent third par@es. Variousnancial ra@os and cash ows support this conclusion as well

It is clear that there has been an increase in administra@ve costs,and a decline in the propor@on of instruc@onal costs over @me;this nancial evidence is supported by the employment data. Thepeer data on administra@ve costs is not aJering to the U

Lets dispose of a few myths: The State appropria@on is not the majority revenue source, as some maybelieve; for the U it is 21%

Faculty salaries are not 75% of total costs; less than 20% in reality It is not faculty salaries that is causing tui@on to increase administra@ve

costs are the main culprit

Faculty are generally lower paid than faculty at peer ins@tu@ons Class sizes are increasing at some level over the last several years Athle@c spending is not high when compared to total expenses,

but it has been increasing signicantly over the last several years

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Aspira@ons


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p @ Change the conversa2on instead of gh2ng over which

academic programs to cut, talk about reserves. Then,ensure that administra2on cuts are discussed up front. Theincrease in the number and cost of administra2on isalarming, and it must be addressed rst. The newPresident stated: When the provost arrives, he or she willlead the conversa+on around to focus on academic programs mndaily.com 9/ 6/11

As faculty, we should be skep2cal and persistent indemanding that the most resources necessary are beingcommi ed to the key academic and research missions ofUM

The response that we should be lucky to have our jobsneeds to be rejected; public higher educa2on is a publicgood and we need to stand up for the role of higher

Financial Analysis of the University of Minnesota 2011

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