Financial Condition Analysis for Community Colleges. Thomas Keaton, MPA Director, Funding

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1 Financial Condition Analysis for Community Colleges Thomas Keaton, MPA Director, Funding

2 Overview Background Key questions CARAT Metrics Analysis Summary Questions

3 Background Directed by GAA, Rider 13 (page III-205) Financial Information Reporting Requirement. Each community college shall provide to the Texas Higher Education Coordinating Board financial data related to the operation of each community college using the specific content and format prescribed by the Coordinating Board. Each community college shall provide the report no later than January 1 st of each year. The Coordinating Board shall provide an annual report due on May 1 to the Legislative Budget Board and Governor's Office about the financial condition of the state's community college districts.

4 Key Questions Are resources sufficient and flexible enough to support the mission? Are resources, including debt, managed strategically to advance the mission? Does asset performance and management support the strategic direction? Do operating results indicate the institution is living within available resources?

5 Community College Annual Reporting and Analysis Tool (CARAT) Developed collaboratively Based on institutionally reported data Informed updates Creates indicators Creates digestible, yet detailed, information

6 Community College Annual Reporting and Analysis Tool (CARAT)

7 Metrics Financially capable of successfully carrying out current programs? Is the institution Able to carry out intended programs well in the future? Composite Financial Index (CFI) Primary Reserve Ratio* Viability Ratio* Return on Net Position* Operating Margin* Equity Ratio Leverage Ratio * - used to calculate the CFI

8 Metrics Composite Financial Index (CFI) Measures overall fiscal health Considers Return on Net Assets, Operating Margin, Primary Reserve, and Viability Ratio Compute core ratio Calculate strength by dividing by threshold value Weight the results Total scores to get CFI Standard is 2.0 or greater met by 37 of 50 districts

9 Metrics Primary Reserve Ratio How long can the institution survive without additional net assets generated by operating revenue? Total expendable net assets + restricted net assets/operating expenses + interest expense on debt Standard is a ratio of 0.14 or greater met by 47 of 50 districts Viability Ratio Compares total expendable net assets to certain noncurrent liabilities Total expendable net assets + unrestricted net assets/noncurrent liabilities, excluding general obligation (GO) debt Standard is a ratio of 0.42 or greater met by 42 of 50 districts

10 Metrics Return on Net Position Are they better off financially than they were a year ago? Total economic return during the fiscal year Change in net assets/total net assets (beginning of year) Standard is a positive return met by 40 of 50 districts Operating Margin Identifies an operating surplus or deficit in a given fiscal year Total income total operating expenses / Total income Standard is a positive margin met by 41 of 50 districts

11 Metrics Equity Ratio Measure capital resources available and ability to borrow Net assets / Total assets Standard is 20 percent or greater met by 48 of 50 districts Leverage Ratio Indication of the amount of debt service the institution must absorb into the future relative to existing resources Long term debt / Total net assets Standard is less than 2.0 met by 48 of 50 districts

12 Analysis 3.8 Statewide Composite Financial Index CFI

13 Analysis 50 Indicators met or more or fewer

14 Analysis Appendix C: Composite Financial Index, Core Financial and Other Ratios Fiscal Year 2014 General Obligation Bond Debt Excluded Financial Stress Indicators District Composite Financial Index Return on Net Position Operating Margin Primary Reserve Viability Ratio Equity Ratio Leverage Ratio 3 Alamo 0.88 (0.01) (0.01) % Alvin (0.01) % - 2 Amarillo 3.48 (0.50) (0.02) % Angelina % Austin 0.02 (0.08) % Blinn % Brazosport % Central Texas % - 3 Cisco 0.76 (0.01) (0.00) % Clarendon 1.88 (0.01) % Coastal Bend % College Of The Mainland 4.25 (0.01) (0.01) % - 0 Collin % Dallas % - 0 Del Mar % - 0 El Paso % 0.35

15 Analysis

16 Summary Robust system Digests complicated financial data into usable information Allows broad or detailed analysis Very high level of transparency Stimulates questions and focuses inquiry Formative assessment, not summative

17 Questions Direct questions to: Thomas Keaton, MPA Director, Funding Texas Higher Education Coordinating Board (512)

Financial Condition Analysis of Texas Public Community College Districts

Strategic Planning and Funding AGENDA ITEM V-B DRAFT Financial Condition Analysis of Texas Public Community College Districts May 2016 Texas Higher Education Coordinating Board Robert Bobby Jenkins Jr.,