RubinBrown Colleges & Universities Stat Book | PUBLIC INSTITUTIONS

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COLLEGES & UNIVERSITIES STATS PUBLIC INSTITUTIONS

A publication by RubinBrown LLP

EXECUTIVE SUMMARY

RubinBrown is pleased to present the 2019 Colleges & Universities Statistical Analysis, focusing on public institutions, compiled by RubinBrown’s Colleges & Universities Services Group. Included in the report is statistical information for 36 public colleges and universities in Illinois, Iowa, Kansas and Missouri. The source data for this report was obtained from publicly available documents for each institution. For questions, please contact the Colleges & Universities Services Group (see page 6 for contact information).

Industry Overview Two calculations that accreditors and regulators use to evaluate the financial health and fiscal responsibility of an institution are the Composite Financial Index score (CFI) and the Department of Education’s Financial Responsibility Composite Score. The CFI is published in the Strategic Financial Analysis for Higher Education: Identifying Measuring & Reporting Financial Risks (Seventh Edition) by KPMG LLP; Prager, Sealy & Co., LLC; Attain LLC. The Higher Learning Commission (HLC) utilizes the CFI for public institutions Department of Education’s Financial Responsibility Composite Score for private institutions when evaluating financial indicators. The HLC defines a private institution as any not-for-profit or for-profit school. The HLC sets forth certain CFI score ranges for each type of institution. The scores indicate if an institution’s financial indicators are deemed acceptable or if they warrant further review.

Above the Zone If an institution falls above the zone, no follow up is required. In the Zone If an institution reports a score that falls within the zone for the first time, the HLC will issue a letter of concern. If reporting for the second consecutive year, HLC will require the institution to submit a report and undergo a panel review process in which three peers review the information and evaluate whether or not the institution is at risk of not meeting the Criteria for Accreditation. Below the Zone If an institution reports a score that falls below the zone, the institution will be required to submit a report to the HLC and will undergo the panel review process described above.

The Higher Learning Commission Ranges for CFI Scores

Below the Zone

In the Zone

Above the Zone

Public Institutions

-1.0 to 0.9

1.0 to 1.4

1.5 to 3.0

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RubinBrown Colleges & Universities Stats 2019

CFI Scores RubinBrown reviewed the financial statements of 36 public institutions and calculated the CFI scores. The average CFI score in fiscal years ending in 2017 and 2016 were 2.17 and 1.97, respectively. In the fiscal year ending in 2018, the average CFI score increased to 2.49 as institutions in the State of Illinois received increased state appropriations. A point of interest to note is that Missouri public institutions saw an average CFI score decrease of 0.63 while Illinois public universities saw an average increase of 2.47. The decrease in Missouri’s score is due to continued high pension expenses related to actuarial calculations while state appropriations remained generally stagnant. The State of Illinois’ increase is primarily related to the timing of state appropriations as certain state appropriations related to 2017 were uncertain and were unable to be recorded in 2017 and were therefore recognized once approved and received in 2018. Overall, the scores ranged from -0.81 to 5.84 for FY16, -1.55 to 6.88 for FY17, and -1.62 to 6.02 for FY18.

CFI Score Factors The CFI score is generated through weighting four different ratios in order to evaluate the overall financial health of an institution.

Those factors include the following ratios:

· Primary reserve ratio · Viability ratio · Net operating revenue ratio · Return on net assets ratio

The primary reserve ratio and viability ratio are both inputs for the CFI score that measure the ability of an institution to utilize its expendable net assets to fund operating expenses (primary reserve) and existing plant-related debt (viability). The net operating revenue ratio and return on net assets ratio are more focused on the current year increase/decrease to the unrestricted (net operating revenue) and overall (return Given the volatility in enrollment and in contributions from year to year, institutions should be evaluating how well they can function on their existing expendable assets going forward. The primary reserve ratio seeks to provide an institution with a snapshot of how long it could operate without generating any additional revenue. This allows an institution to see how flexible it might be in expanding into new programs or may indicate how dependent the institution is on future sources of revenues to support or expand its mission. The primary reserve ratio is calculated by dividing expendable net assets by total operating expenses. Expendable net assets exclude property, plant, and equipment net of the related long-term debt. Therefore, it is possible to have negative expendable net assets after excluding property, plant and equipment net of related debt. This can occur sometimes when an institution has permanent restrictions on its net position that exceed its liquid assets. A general target ratio for the primary reserve ratio is 0.4, which provides a school with approximately five months of resources to fund operations without any additional revenue. For FY16 and FY17, the average primary reserve ratio in this analysis was 0.35 for both on net assets) bottom line. Primary Reserve Ratio

CFI Score Distribution by Percent of Insititutions

80%

70%

60%

27.8% 33.3% 44.5%

41.6% 27.8% 13.9%

50%

40%

30%

16.7% 19.4% 19.4%

13.9% 13.9% 19.4%

20%

PERCENT OF INSTITUTIONS (%)

0.0% 5.6% 2.8%

10%

0%

0 to 2

2 to 4

4 to 6

6 to 8

-2 to 0

FY16

FY17

FY18

CFI Score Averages by Type of Institution & State * 2-year 4-year IL IA KS

MO

FY16

2.62 1.97 0.47 3.30 3.58 1.35

FY17

2.95 2.17 1.05 3.63 4.47 0.59

FY18

3.08 2.49 3.52 3.70 3.68 -0.04

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Public Institutions Executive Summary

* All state averages are for four year institutions for purposes of the statistics in this publication

INSTITUTION SCORES PUBLIC

years. The average primary reserve ratio dipped in FY18 to 0.33. There was a significant concentration of institutions that had primary reserve ratio results below the recommended threshold.

Public institutions had an average viability ratio of 1.00 in FY16, 1.06 in FY17, and 1.00 in FY18. It was noted that the average four-year Kansas, four-year Iowa, and two-year institutions had average viability ratios greater than 1:1 while 4-year Missouri and Illinois institutions had average viability ratios under 1:1.

Primary Reserve Ratio Frequency by Percentage of Institution

Viability Ratio Frequency by Percent of Institutions

80%

80%

70%

70%

60%

60%

36.1% 36.1% 41.6%

41.7% 41.7% 33.3%

50%

50%

40%

40%

30.5% 22.2% 27.8%

27.8% 25.0% 5.6%

22.2% 19.4% 19.4%

30%

30%

11.1% 8.3% 16.7% 6

13.9% 13.9% 11.1%

20%

20%

11.1% 5.6% 2.8%

11.1% 8.3% 11.1%

2.8% 5.6% 11.1%

PERCENT OF INSTITUTIONS (%)

PERCENT OF INSTITUTIONS (%)

5.6% 5.6% 0.0%

2.8% 5.6% 5.6%

10%

10%

0%

0%

>1.0

< 0.0

0 to 2

2 to 4

4 to 6

4 to 6

6 to 8

-2 to 0

0.0–0.25

0.75–1.0

0.25–0.50

0.50–0.75

FY16

FY17

FY18

FY16

FY17

FY18

Primary Reserve Ratio Averages by Type of Institution & State * 2-year 4-year IL IA KS MO

Viability Ratio Averages by Type of Institution & State * 2-year 4-year IL IA KS

MO

FY16

FY16

0.28 0.35 0.25 0.59 0.67 0.20

1.07 1.00 0.95 1.31 1.80 0.34

FY17

FY17

0.31 0.35 0.24 0.57 0.69 0.17

1.27 1.06 0.95 1.41 1.87 0.33

FY18

FY18

0.33 0.33 0.22 0.59 0.73 0.09

1.33 1.00 0.89 1.46 1.77 0.18

Revenue and Expense Analysis In the current economic climate, institutions face continued pressure to generate more revenue while keeping tuition rates low and increasing scholarships provided to students. The following analysis seeks to illustrate the trends in revenues and expenses over the last three fiscal years. Return on Net Assets The return on net assets ratio seeks to measure the total increase or decrease in the net position and net assets of each public institution when including all component units. The overall average return on net assets was

Viability Ratio The viability ratio is a similar tool for institutions to evaluate how they could use their expendable net assets to pay down existing capital related debt (excluding borrowing for liquidity purposes). When an institution’s viability ratio falls below 1:1, it runs a greater risk of not being able to sustain itself with institutional resources in the event of a market or industry downturn. Certainly some institutions can thrive at a viability ratio of less than 1:1, but each one should evaluate how affordable its debt might be and work towards its targeted threshold.

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RubinBrown Colleges & Universities Stats 2019

Salaries & Benefit Demand Frequency by Percentage of Institutions

only 1.01% in FY16 and 3.68% in FY17. The return on net assets overall average spiked in FY18 to 7.00% due to significant returns for Illinois related to the timing of state appropriations noted. Overall, the margins with which most public institutions operate are typically thin; 25% of the institutions reviewed experienced negative returns in at least two out of the last three years ending in FY18.

80%

41.7% 41.7% 66.6%

70%

60%

50%

22.2% 25.0% 36.1%

40%

Return on Net Assets Averages by Type of Institution & State * 2-year 4-year IL IA KS

30%

16.7% 13.9% 5.6%

20%

PERCENT OF INSTITUTIONS (%)

8.3% 0.0% 0.0%

8.3% 8.3% 5.6%

MO

10%

FY16

6.50% 1.01% -8.19% 4.58% 2.33% 3.47%

0%

FY17

7.30% 3.68% -1.62% 8.12% 7.85% 1.66%

40%–50%

50%–60%

60%–70%

70%–80%

80%–90%

FY18

7.43% 7.00% 18.01% 8.13% 3.68% -1.23%

FY16

FY17

FY18

The average four-year institution had a salaries and benefits demand ratio of 62.70% in FY18 while the average two-year institution had salaries and benefits demand ratio of 55.30%. Pension expenses that vary at times year over year can influence this ratio, but regardless of pension costs, salaries and benefits make up the largest cost at nearly every public institution. The table below illustrates that net tuition and fees revenue generally has remained flat or has not increased significantly to match the continued increase in expenses seen by many public institutions. Enrollment figures below for state averages are estimates for the entire state including private institutions. Year-Over-Year Change in Net Tuition & Fees Revenue

Expense Demand Ratios Public institutions generally present expenses within their financial statements using natural classifications or IPEDS functional classifications often providing a reconciliation to the natural classification presentation in the footnotes. For this reason, expense demand ratios that seek to illustrate how much of a certain type of expense takes up total operating income can generally be compared between institutions. Salaries and Benefits expenses represented 61.73% in FY18, 63.98% in FY17, and 61.46% in FY16 of the total operating income for public institutions. The range for the Salaries and Benefits demand ratio was 42.10% to 78.80% in FY16, 45.30% to 83.30% in FY17, and 47.50% to 73.70% in FY18.

Year-Over-Year Percent (%) Change in Net Tuition & Fees Revenue *

% With Decreases

2-year

4-year

IL

IA

KS

MO % With Increases

Tuition and Fees

-3.52% -0.68% -4.37% 5.44% 3.43% -2.58% 55.6% 44.4%

2016 –2017

Enrollment

-2.50% -0.20% -2.90% -0.90% -0.30% -3.70%

Tuition and Fees

0.03% -1.72% -9.72% 4.70% 4.29% 0.60% 47.2% 52.8%

2017 –2018

Enrollment

-2.00% -0.20% 0.20% 0.00% 0.50% -3.00%

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Public Institution Scores

* All state averages are for four year institutions for purposes of the statistics in this publication

INSTITUTION SCORES PUBLIC

Scholarship Allowance In the previous table it was noted that for certain states, the tuition and fees increase outpaced the enrollment growth. This is likely due to increases in tuition rates charged to students coupled with institutions managing their scholarship allowance/institutional discount rate. One way that institutions have sought to attract more students is by increasing the scholarship allowance through providing more discounted tuition. The table below shows the scholarship allowance percentages (tuition discount rate) by state over the last three years.

The average revenue generated from tuition for 53 not-for-profit institutions in Colorado, Illinois, Kansas and Missouri in the last three years was approximately 63.90%. Public institutions have an advantage over not-for-profit institutions as public institutions generally rely heavily on state or local government aid for a significant portion of their revenue, and therefore can keep tuition rates lower than not-for-profit institutions. Contribution Ratios Contribution ratios seek to show how much of the total operating expenses are covered by certain types of revenue. In the following chart, it is noted that public institutions on average had a tuition and fees revenue contribution ratio of 32.90% and a state appropriations contribution ratio of 32.00% in FY18. The remaining 35.00% of expenses for institutions were either not covered or were covered by other revenues such as investment income, sales and services of educational materials, auxiliary enterprises or contributions to the institutions or related foundations. Year-Over-Year Change in State Appropriations State appropriations generally have seen only slight increases over the last few years with many states seeing funding cuts put in place or attempted to be put into place. This creates a challenge for public institutions as costs continue to rise as competition for students remains challenging with overall enrollment trends declining.

Scholarship Allowance Percentage by State *

2-year 4-year

IL

IA KS

MO

FY16

17.00% 21.49% 21.96% 24.80% 15.35% 27.52%

FY17

16.36% 21.85% 21.53% 24.85% 15.86% 29.29%

FY18

17.90% 23.19% 26.16% 24.91% 16.30% 28.51%

Tuition Dependency Ratio The tuition dependency ratio seeks to show how much tuition revenue contributes to the overall operating revenue of an institution. On average, the 36 public institutions included in this analysis generated 35.00%, 33.90%, and 32.80% of their revenue from tuition in FY16, FY17, and FY18, respectively.

Revenue Contribution Ratio Averages by Type of Institution & State *

2-year

4-year

IL

IA

KS

MO

Net Tuition & Fees

37.43% 34.94% 30.55% 23.29% 38.73% 38.00%

FY16

State Appropriations

18.53% 28.03% 35.29% 25.08% 25.93% 30.50%

Total Percentage

55.96% 62.97% 65.84% 48.37% 64.66% 68.50%

Net Tuition & Fees

37.22% 33.50% 28.84% 23.38% 39.26% 33.95%

FY17

State Appropriations

19.20% 29.51% 42.98% 24.31% 25.96% 28.63%

Total Percentage

56.42% 63.01% 71.82% 47.69% 65.22% 62.58%

Net Tuition & Fees

35.84% 32.92% 25.41% 24.37% 40.03% 35.21%

FY18

State Appropriations

19.05% 31.95% 54.92% 22.34% 25.87% 27.46%

Total Percentage

54.89% 64.87% 80.33% 46.71% 65.90% 62.67%

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RubinBrown Colleges & Universities Stats 2019

Year-Over-Year Percent (%) Change in State Appropriations *

2-year

4-year

IL

IA

KS

MO

General

-1.11%

19.45%

82.81%

-1.99%

0.80%

-3.70%

2016 –2017

Overall

2.61%

7.61%

24.55%

-0.96%

2.04%

2.33%

General

-0.10%

39.17%

159.38%

-3.22%

0.20%

-1.54%

2017 –2018

Overall

0.20%

6.67%

29.66%

-1.99%

4.01%

-5.05%

Most of the increases seen in state appropriations have been capital specific in order to address infrastructure and building needs for aging buildings that are prevalent on many campuses. The following table illustrates the change in state appropriations overall and in state general appropriations. Illinois appears to be an outlier; however, their state appropriations were partially withheld in FY16 and FY17 causing a significant increase in each year once the funds were approved and made available to the institutions. Debt Burden Ratio The debt burden ratio is typically calculated by dividing debt service by total expenditures. Debt service consists of the interest and principal paid on long- term debt (excluding principal paid on refinancing transactions). A significant number of institutions rely on debt to finance operations. The debt burden ratio is important because it is a key indicator of an institution’s ability to expand operations. Widely viewed as an industry standard, 7.00% is regarded as the upper threshold for this ratio; however, some institutions can still operate successfully while exceeding this ratio. A higher debt service burden indicates that an institution has less flexibility to manage its operating budget. Institutions with diverse revenue streams might be more comfortable with a higher debt burden ratio than institutions that are highly dependent on revenue generated by tuition. The average debt burden ratio for public institutions was 4.40% in FY16, 4.20% in FY17, and 4.10% in FY18. The lowest debt burden ratio included in the sample was 1.60% while the highest debt burden ratio was 10.10%. There were no public institutions that were debt free in any year reviewed.

Debt Burden Ratio Frequency by Percent of Institutions

80%

70%

60%

41.7% 38.9% 44.5%

33.3% 41.7% 30.8%

50%

40%

30%

11.1% 19.3% 11.1%

20%

PERCENT OF INSTITUTIONS (%)

8.3% 5.6% 8.3%

2.8% 2.8% 0.0%

10%

0%

0%–2%

2%–4%

4%–6%

6%–8%

8%–10%

FY16

FY17

FY18

COLLEGES & UNIVERSITIES SERVICES GROUP

RubinBrown’s Colleges & Universities Services Group provides a full range of assurance, consulting and tax services to colleges and universities. Our specialized services and expertise are delivered with close personal attention to our clients. For more information, visit www.RubinBrown.com/Colleges .

Corey Robinson, CPA Manager 816.859.7943 corey.robinson@rubinbrown.com Chester Moyer, CPA Partner-In-Charge 816.859.7945 chester.moyer@rubinbrown.com

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Public Institution Scores

* All state averages are for four year institutions for purposes of the statistics in this publication

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