LEHIGH University. Financial Planning Report With Budget

Transcription

1 LEHIGH University Financial Planning Report With Budget

2 L E H I G H U N I V E R S I T Y B U D G E T T A B L E O F C O N T E N T S PAGE I. COMMENTARY 1-9 II. COMPOSITE BUDGET 10 III. REVENUE AND EXPENDITURE DISTRIBUTION IV. BUDGET SUMMARIES a. COMPOSITE BUDGET 13 b. AUXILIARY ENTERPRISES 14 c. FINANCIAL AID 15 d. PLANT FUND 15 V. RELATED ORGANIZATIONS 16

3 To the Board of Trustees Lehigh University May 2012 In order to fully implement our strategic plan, we have spent the past year building a comprehensive master plan and campaign plan. These efforts include identifying and planning for the next ten years of capital investments in support of the strategic priorities of Lehigh, the creation of a sustainability plan in support of the University s Climate Commitment, and the planning for future fundraising initiatives. In addition, we have reviewed and modeled the specific assumptions for the university s operating budget, with a primary focus on the results anticipated for the fiscal year July 1, 2012-June 30, This document presents an executive summary and detailed analysis of that operating budget, including an overview, historical data and trends, future projections, and summary schedules outlining both the operating and capital budgets for the coming fiscal year. EXECUTIVE SUMMARY We continue to build on the extensive work done in the last few years to ensure the integration of Lehigh s annual financial planning with the University s long range strategic planning. This document provides the operating budget for the (FY12-13) fiscal year and also provides some information on the preliminary thoughts concerning future projections, with reference to historical and current year data, where applicable. Our plan reflects our expectation that Lehigh will continue to experience the financial realities facing many higher education institutions still recovering from the economic downturn of , with revenue sources continuing to be challenged and thus expenditures quite constrained, in order to ensure a balanced budget for the near and longer-term projections. As a result, our projections are conservative throughout the plan, with most areas of the University again experiencing flat expense budgets. Any additional resources are directed to investments that are necessary in order to advance our mission-critical strategic efforts in key areas. The FY12-13 operating budget reflects the inclusion of the major proposed parameters approved in February by the Executive Committee. These parameters are predicated on the need for Lehigh to focus on access and affordability for students who enroll, both through constrained growth in tuition, as well as in enhanced financial aid programs. Overall, the FY12-13 budget is balanced with the operating budget at $426,803,690, a 3.5% growth over the prior year. 1

4 CAMPUS PLANNING As we move forward in the best possible direction for Lehigh and to meet our future challenges the University continues with the implementation of the Strategic Plan. The Strategic Plan Implementation Group (SPIG), created to ensure plan implementation across the campus, is leading those efforts. Although a significant portion of the Strategic Plan investments are planned over the next 10 years, opportunities to jump start some of the programs earlier were identified and initial funds set aside in the FY12-13 operating budget. This includes debt payments for a taxable bank loan to take advantage of the current low interest rates and invest earlier in our strategic plan initiatives for targeted faculty hires. These proceeds have been invested in the endowment fund and the income will be used to provide interim funding for one time incremental faculty positions in each of the next three cluster hires in anticipation of fundraising dollars being received to permanently support these endowed chairs. We also implemented a commercial paper program to provide interim funding of capital expenditures. Further, we have identified funding through set asides or reallocations to support strategic investments in other areas of the plan including Globalization, Southside Community engagement, investing in Faculty and Staff, and branding, as well as allocating discretionary funds to the Provost area for highest priority needs throughout the year. In addition, the Donald B. and Dorothy L. Stabler Foundation recently donated 755 acres in Upper Saucon Township, one of the most generous gifts in Lehigh's history. We have established a new corporate entity, LU Properties LLC, to manage the finances, maintenance and any sales or future development of the property. The University has engaged the national real estate consulting firm, Jones Lang LaSalle, to assist us in the development of a strategic real estate asset plan for the property, which will guide our focus on the property's long-term potential for Lehigh. The Campus Planning and Operations Committee will be involved in this campus process which will ultimately be shared with the full board for feedback as we develop a comprehensive strategic plan for the use of the property. OVERALL FINANCIAL ANALYSIS PICTURE The University s FY12-13 operating budget serves as its financial plan, developed on a basis that is separate but related to the method of preparing the audited financial statements. The key difference between the budget and the audited financial statements is that the budget focuses on cash, while the audited financial statements consider cash as well as accrued expenses and revenues. The annual operating budget developed here reflects the budget allocation decisions necessary to accomplish University goals and ensure physical and financial resources are appropriately preserved for the future and that revenues and expenses remain in balance. Similar to many private institutions of higher education, Lehigh University s operating budget includes multiple fund groups, each with its own particular set of rules as how the funds can be utilized. For example, expendable restricted funds are restricted as to the 2

5 purpose by the provider (research activity, restricted gifts, etc.) while unrestricted funds can be used for any activities consistent with the overall purpose of the University. In addition there are two other fund groups included in the operating budget, designated and auxiliary services, both of these are self-balancing activities with a required balance between revenue and expense. With the economic environment continuing to strain restricted funds in areas such as investment growth and fund raising the University continues to feel the pressures placed on unrestricted sources such as undergraduate tuition. While we have effectively deployed restricted funds (gifts, endowment earnings for financial aid, etc.) the expectation is that for the next two to three years, these restricted sources will continue to show minimal growth resulting in continued pressures on unrestricted funding sources that are expected to grow at a rate no greater than inflation. The composition of the $427 million budget for FY12-13 consists of unrestricted funds of $273 million (64% of the operating budget), restricted funds of $89 million (21% of the operating budget), auxiliary services of $44 million (10% of the operating budget), and designated funds of $21 million (5% of the operating budget). HIGHLIGHTS OF THE FINANCIAL PLAN: Strategic Plan Funding Multi-year budget projections are being used as a basis for ongoing planning. We continue to integrate the plan priorities with ongoing activities on campus while taking advantage of opportunities to reallocate / redistribute funds based on analysis undertaken through the Strategic Plan Implementation work. Early years of the plan assume more reallocation while later years build toward an environment with additional resources provided by fundraising Operating Budget The FY12-13 budget is balanced based on inclusion of the major proposed parameters approved by the Executive Committee in February. The operating budget revenues total $426,803,690; expenditures total $425,459,690; with a projected unrestricted surplus of $1,344,000. Projected budgeted revenues are expected to grow 3.5% over the FY11-12 budget. The modest growth reflects a minimal change in tuition and fees, gifts for operations, and endowment spending generated by additional gifts. The major budget operating expense components include $299,912,160 for educational and general expenses, $80,966,430 for financial aid, and $44,581,100 for auxiliary operations. In addition, the separate plant fund budget, which reflects capital expenditures rather than operating items, totals $45,158,770. General Expense Increases The development of the FY12-13 operating budget is based on a flat budget for general expenditures with incremental dollars going only to a few critical investments in order to advance strategic efforts in key areas. Thus, individual units have had to reallocate their existing resources 3

6 toward higher-priority areas, in order to cover any changes in expense projections. Endowment Spending An important element of the university s revenues is the endowment payout resulting from the endowment spending formula. Because of the significant decline in the financial markets in the university temporarily suspended the floor of the spending rate calculation and instituted reductions in the spending per share rate of 5% for FY09-10, 3% for FY10-11 and 0.5% for FY For FY12-13 the budget includes a 0% change in the spending per share rate, with continued conservative estimates in future fiscal years being considered as market conditions dictate. Capital Plans We are continuing to subject all capital projects to close examination, with approval provided only to those that have a dedicated funding source, or are required for the arrival of new faculty or staff. With the approval of the Campus Master Plan in March 2012, we are currently reviewing these recommendations which will be incorporated into the multi-year capital budget as projects are identified and timelines established. Debt The university borrowed funds to accelerate strategy plan initiatives, specifically for faculty cluster hires anticipated for fall The proceeds of the loan have been invested in the endowment fund and it is anticipated that the loan principal will be repaid through fundraising. Lehigh also implemented a commercial paper program to provide interim funding of capital expenditures with the expectation that the commercial paper will be folded into a future long term tax exempt debt issue. BUDGETARY PRIORITIES Expense Categories Compensation Continued investment in high performing personnel remains a priority. Therefore, we continue our efforts to support employees through 100% merit-based salary increases for FY12-13 while also partnering with employees on benefits costs. In constructing the FY12-13 compensation budget we paid careful attention to the following: Continuation of the staff position review process to determine when each opening occurs whether lower priority work can be stopped so that positions can be eliminated or reduced, with the savings dedicated to higher priority needs Faculty staffing analysis through strategic discussions between the Provost and each Dean Merit increase setting based on analysis of industry comparisons/projections, turnover/retention 4

7 statistics, experienced and anticipated inflation and faculty and staff market equity issues The continuing benefits allocation review process, with a goal of identifying the highest priority benefits areas within the existing expenditure level for the University The salary increase allocation for faculty and staff is 2.75% for the annual merit pool process. In addition to the merit allocations, we have identified an additional amount for faculty market adjustments. This is the third year of a multi-year effort to recognize and retain top faculty. Financial Aid - Undergraduate We plan to increase the undergraduate institutional financial aid support, including both unrestricted and restricted funds, by 3.9% for FY This growth reflects the increase to aid for all returning students in proportion to the increased costs of attendance, as well as any adjustments to continuing students financial aid needs resulting from the needs analysis that determines family contribution based on changing family circumstances, and funding the projected needs of the entering class. We will use the insights from the May 2012 Board of Trustees discussion of this important topic to inform our future year planning. At this point, other key assumptions in developing the FY12-13 financial aid projections include: Continue using current practices in awarding financial aid, such as meeting approximately 95% of demonstrated need for each eligible student, using need-blind admissions practices, awarding reduced/no-loan packages for low income families, and providing preferential packaging and merit awards in order to recruit students we most want at Lehigh Continue to develop outreach programs with partners such as the Milton Hershey School and Northampton Community College and evaluate the best strategic use of funds for international student needs Planning on the level of support from government sources being flat with current year levels Assuming that family needs will continue to increase at a rate comparable to recent trends Establishing an endowment fund specifically for women in Science, Technology, Engineering, and Mathematics (STEM) fields Allocation of financial aid for summer school enrollment support aimed at retaining at-risk students 5

8 6 In addition to the institutional growth, we continue to maintain a one-time reserve to guard against any unforeseen temporary increases to financial aid needs or drop in enrollment as a result of the economic environment. Facilities Operations and Maintenance We are holding the facilities total operating budget at current levels for the new year. Major highlights include: Utilities expense The continued stabilization of the price structure of electricity subsequent to deregulation of electric rates resulted in no incremental increases in the budget for FY In addition, we have made energy use reduction investments across campus, and used open market purchasing strategies to yield positive rates compared to fixed contracts Sustainability We will identify sustainability initiatives as the plan is finalized, and will incorporate these into activities across the campus, both in operating and capital investments. As we put these plans in place, we will identify specific priorities in areas such as water use, energy use, waste management strategies and building principles Building operations and maintenance We will drive any increases in future years maintenance investments by the campus master plan investments, tied to strategic institutional priorities Other Expenses High priority specific investments identified for special funding include: Increase in insurance premium costs Additional funds being made available to support library journal costs and the Southside Community engagement Support software and systems needs in areas such as graduate enrollment management, electronic grant management, and wireless connectivity upgrades Incremental support for the VP for International Affairs Discretionary funds made available to the Provost for highest priority academic needs

9 Revenue Categories Tuition / Fees and Enrollment Tuition continues to be the single largest source of income for the University. Lehigh s per student undergraduate tuition is currently below the average of our comparison institutions and is projected to continue to remain below the comparison group in FY12-13 as well. Significant tuition and enrollment information is as follows: Tuition increase of 3.1%; one of the lowest increases in 40 years (2.9% in FY09-10; 3% in FY10-11; 3% in FY11-12) No increase in the technology fee Room increase of 3.7% and board increase of 3.5% Total cost of attendance $53,450; increase of 3.2% Undergraduate fall/spring enrollment is budgeted at 4,600 FTE with a first year class target of 1,200 and fall semester transfers at 65. Given the financial aid investment described above we anticipate a fall/spring undergraduate tuition discount of 33.8%. Graduate enrollments are projected to maintain the higher levels we have experienced in the past few years Investment Return The FY12-13 plans assume no increase to the endowment spending rate per share, which follows three years of reduction in this rate in order to protect the long-term value of endowment principal. We are anticipating some increase in gifts to endowment, which will help offset expense increases to some extent. Finally, we are projecting that short term investment income will show little increase due to low interest rates available in the market. Gifts We project that the income from non-capital gifts available for general expenditures will increase modestly for the FY12-13 fiscal year. Major considerations in developing the gift projections include: Continued economic pressures on donors Conservative estimates on the unrestricted Annual Fund performance and gifts for scholarships based on recent experience Initial modest impact from incremental investment to support the new fundraising campaign, as these results will be more visible in later years Auxiliary Enterprise The Auxiliary Enterprises will continue to maintain their own financial viability while also increasing their contribution to the unrestricted general fund. The major sources of auxiliary income are derived from residential facilities and dining services, which 7

10 will return $1,160,080 to the general operating budget, as well as continue to self-fund maintenance of facilities and equipment. The combined Room and Board revenue increase for FY12-13 is 3.6% Research Research continues to be characterized by very tight funding. Although performance at earning federal grant support has been good considering the competitive environment and flat federal funding we anticipate research income for FY12-13 to be slightly below current levels. The projections are based on a very uncertain federal budget outlook, cessation of earmarks, major cutbacks in state budgets for university research, the ending of ARRA funded projects, and weak markets for corporate and foundation funding COST CONTAINMENT The University is continuing the practice in recent years of providing no funding for general expense increases for FY12-13, with the expectation that any general office or departmental expense needs within an area will be covered by reallocations from lowerpriority items to higher-priority items. In addition, we will continue to review all staff positions with care, and will direct the faculty hiring opportunities to highest priority areas. NEW INVESTMENTS In these times of financial uncertainty, it is nonetheless vital to continue investing in our most important areas, in order to advance our mission-critical strategic efforts. In addition to the financial aid area, where we anticipate increased expenditures, we also are planning targeted additional investment in a few areas key for the support of the University s mission. Requests from vice presidential stems for additional funds were limited to only the highest priority items and totaled $6.3 million of permanent funding. While most of these requests were either denied or funded through reallocation, $1.5 million of new funding were identified in FY SUMMARY We hereby present the FY12-13 fiscal year budget to the Board of Trustees. The overall budget growth is 3.5%. As discussed earlier in this document, incremental funding for expenditures went to only the highest priority items. This resulted in a modest growth in expense budgets for compensation, financial aid, and a few departmental budgets. However, those expense increases are being partially offset by cost reductions in general expenditures. We also project revenue increases to be modest as the sluggish economy continues to impact the university s major revenue sources. The comprehensive university operating budget, including Educational and General, Financial Aid, and Auxiliary Enterprises, totals $426,803,690 in revenues and appropriations. Expenditures and appropriations total $425,459,690. The amount of 8

11 $1,344,000, as required by University policy, is projected as the unrestricted unappropriated balance. The Plant Fund budget is the final component of the composite budget. This budget identifies capital expenditure items, rather than operating items, for the coming fiscal year. We project a total plant fund budget of $45,158,770. Current fund transfers of $16,334,130 and gift and other plant fund sources in the amount of $28,824,640 will provide the necessary funds for this total budget. In addition to the University operating budget the related organizations of the University project activity totaling $9,661,280. The related organizations are the Ben Franklin Partners of Northeastern PA (BFTPNE), the Manufacturers Resource Center (MRC), and the Northampton County Revolving Loan Fund (RLF). We hope that this overview has given you a sense of the size and scope of the FY12-13 budget. On the following pages, we provide additional budget information for an operating budget totaling almost $427 million and a capital (plant fund) budget totaling $45 million. Respectfully submitted, Margaret F. Plympton Vice President for Finance and Administration Stephen J. Guttman Director of Budget 9

12 L E H I G H U N I V E R S I T Y C O M P O S I T E B U D G E T WITH COMPARISON REVENUES EXPENDITURES REVENUES EXPENDITURES UNRESTRICTED Educational and General 266,223, ,522, ,937, ,135,490 Financial Aid 3,500,000 53,779,350 3,500,000 53,370,680 Auxiliary Enterprises 44,581,100 44,581,100 43,193,220 43,193,220 Subtotal 314,304, ,883, ,630, ,699,390 Appropriations 3,265,030 18,342,380 2,157,240 16,788,570 TOTAL - UNRESTRICTED 317,569, ,225, ,787, ,487,960 Unappropriated Balance 1,344,000 1,300,000 DESIGNATED Educational and General 19,385,730 19,385,730 17,003,350 17,003,350 Financial Aid 1,499,200 1,499,200 1,533,250 1,533,250 TOTAL - DESIGNATED 20,884,930 20,884,930 18,536,600 18,536,600 RESTRICTED Educational and General 62,661,350 62,661,350 62,220,180 62,220,180 Financial Aid 25,687,880 25,687,880 23,630,440 23,630,440 TOTAL - RESTRICTED 88,349,230 88,349,230 85,850,620 85,850,620 COMBINED TOTAL UNRESTRICTED, DESIGNATED, AND RESTRICTED Educational and General 348,270, ,569, ,161, ,359,020 Financial Aid 30,687,080 80,966,430 28,663,690 78,534,370 Auxiliary Enterprises 44,581,100 44,581,100 43,193,220 43,193,220 Subtotal 423,538, ,117, ,017, ,086,610 Appropriations 3,265,030 18,342,380 2,157,240 16,788,570 TOTAL - UNRESTRICTED, DESIGNATED, AND RESTRICTED 426,803, ,459, ,175, ,875,180 Unappropriated Balance 1,344,000 1,300,000 10

13 LEHIGH UNIVERSITY Sources of Operating Revenue $426,803,690 Financial Aid Government 1.1% Research Grants & Contracts 7.9% Indirect Cost Recovery 1.9% Other 4.1% Gifts 3.8% Other Investment Returns 2.6% Tuition & Fees 54.2% Endowment Earnings 13.9% Auxiliary Other Sources 2.6% Room & Board 7.9% 11

14 LEHIGH UNIVERSITY Operating Expenditure Distribution By Expense Area $425,459,690 Facilities - Operations and Maintenance 8.7% Unrestricted Support for Debt Service 2.2% Financial Aid 19.0% Salary & Wages 35.3% General Expenses 23.7% Employee Benefits 11.1% Note: Facilities Operations and Maintenance salaries/eb's are included in the salary/wage and eb categories 12

15 L E H I G H U N I V E R S I T Y B U D G E T S U M M A R I E S U N R E S T R I C T E D A N D R E S T R I C T E D C O M P O S I T E B U D G E T REVENUE AND APPROPRIATIONS % of % of Amount Total Amount Total Tuition and Fees 231,314, ,795, Auxiliary - Room and Board 33,643, ,421, Auxiliary - Other Sources 10,937, ,771, Endowment Earnings 59,575, ,195, Other Investment Returns 10,900, ,800, Gifts 16,100, ,100, Grants and Contracts 33,804, ,532, Financial Aid - Government 4,649, ,707, Indirect Cost Recovery 8,067, ,571, Other 14,546, ,122, Appropriations 3,265, ,157, TOTAL-REVENUE AND APPROPRIATIONS 426,803, ,175, EXPENDITURES AND APPROPRIATIONS Salaries and Wages 150,010, ,724, Employee Benefits 47,162, ,855, Total Compensation 197,173, ,580, General Expenses 87,135, ,561, Contract Food Operations 13,660, ,539, Financial Aid 80,966, ,534, Facilities - Operations and Maintenance 37,185, ,321, Unrestricted Support for Debt Service 9,338, ,338, TOTAL - EXPENDITURES AND APPROPRIATIONS 425,459, ,875, Unappropriated Balance 1,344,000 1,300,000 TOTAL 426,803, ,175,180 13

16 A U X I L I A R Y E N T E R P R I S E S B U D G E T UNRESTRICTED % of % of Amount Total Amount Total REVENUE Room and Board Residence Services* 22,833, ,977, Food Services 10,810, ,444, Total - Room and Board 33,643, ,421, Other Sources Residence Services 649, , Residence Halls Association 143, , Food Service** 4,491, ,622, Bookstore** 4,980, ,891, Child Care Center 598, , Debit Card Services 74, , Total - Other Sources 10,937, ,771, TOTAL - REVENUE 44,581, ,193, EXPENDITURES Residence Services* 23,482, ,511, Residence Halls Association 143, , Food Service** 15,301, ,066, Bookstore** 4,980, ,891, Child Care Center 598, , Debit Card Services 74, , TOTAL - EXPENDITURES 44,581, ,193, * Residence Services includes Residence Halls, Fraternities and Sororities ** Food Services is operated by Sodexo and Bookstore is operated by Barnes & Noble 14

17 F I N A N C I A L A I D B U D G E T REVENUE % of % of Amount Total Amount Total Endowment Earnings 21,453, ,353, Gifts and Grants 4,584, ,603, Government Support 4,649, ,707, Unrestricted Educational Budget 50,279, ,870, TOTAL - REVENUE 80,966, ,534, EXPENDITURES Undergraduates University Sources 66,067, ,585, Government Sources 4,649, ,707, TOTAL - UNDERGRADUATES 70,716, ,292, GRADUATES 10,107, ,113, PRIZES 142, , TOTAL - EXPENDITURES 80,966, ,534, P L A N T F U N D B U D G E T SOURCES OF REVENUES Amount Plant Preservation 8,505,250 General 11,104,280 Gifts 7,440,000 Debt Service 18,109,240 TOTAL - SOURCES 45,158,770 USES Building Construction and Renovations 26,354,530 Land Improvements 695,000 Debt Amortization 18,109,240 TOTAL - USES 45,158,770 15

18 L E H I G H U N I V E R S I T Y R E L A T E D O R G A N I Z A T I O N S Restricted Personnel Expense Total Prior Year BEN FRANKLIN PARTNERSHIP REVENUES Federal and State Grants 5,400,000 18,000,000 Unrestricted Funds; Private Gifts & Grant 1,600, ,000 TOTAL - REVENUES 7,000,000 18,500,000 EXPENDITURES Administration and General 730, ,000 1,220,000 1,600,000 Projects at Lehigh 100, , ,000 Projects with others 2,600,000 2,600,000 4,500,000 Other Programs 1,865,000 1,215,000 3,080,000 11,900,000 TOTAL - BEN FRANKLIN PARTNERSHIP 2,595,000 4,405,000 7,000,000 18,500,000 MANUFACTURERS RESOURCE CENTER REVENUES Federal and State Grants 1,350,950 1,274,720 Client Revenue and Unrestricted Funds 1,110,000 1,081,390 Interest and Investment Income 182, ,110 TOTAL - REVENUES 2,643,280 2,629,220 EXPENDITURES Administration and Programs 1,549,510 1,093,770 2,643,280 2,629,220 TOTAL - MANUFACTURERS RESOURCE CENTER 1,549,510 1,093,770 2,643,280 2,629,220 SMALL BUSINESS DEVELOPMENT CENTER REVOLVING LOAN FUND REVENUES Interest and Fees 18,000 16,000 EXPENDITURES Administration 16,000 2,000 18,000 16,000 Loan Commitments TOTAL - SBDC REVOLVING LOAN FUND 16,000 2,000 18,000 16,000 16