Welcome!!June 11, 2014 – Campus Forum

President Susan Martin & CFO John Lumm

Deloitte October 2012 Market AnalysisHyper-competitive Local Market

◦ EMU operates in two difficult markets◦ Both core region (greater Detroit) and broader region

(Michigan-Ohio-Indiana) are: Marked by slow employment growth Historical population decline

Dampens growth of traditional freshman◦ Several large competitors, with high and established

market share◦ Near market saturation for many degree programs

EMU Profile◦ Core region:

8.6% of Bachelor’s degrees 7.5% of Master’s degrees

◦ Broad region: 4.4% of Bachelor’s degrees 4.7% of Master’s degrees

◦ In the period 2002 to 2011 EMU had: A slight decline in bachelor’s degree market share A slight increase in master’s degree market share

◦ EMU offerings are well aligned towards high-growth & high-wage occupations

MISSION: (APPROVED/ISPC 10-26-2012)EMU enriches lives in a supportive, intellectually dynamic and diverse community. Our dedicated faculty balance teaching and research to prepare students with relevant skills and real world awareness. We are an institution of opportunity where students learn in and beyond the classroom to benefit the local and global communities.

VISION: (APPROVED/ISPC 10-26-2012) Eastern Michigan University will be a premier public university recognized for

student-centered learning, high quality academic programs and community impact. CORE VALUES: (APPROVED/ISPC 11-13-2012)

Excellence – We provide an exceptional environment to our faculty, staff, and students. We improve our performance continuously and strive to be the best in everything we do.

Respect – We care for our people, communities and the environment and show respect for the dignity of the individual.Inclusiveness – We create an environment that supports, represents, embraces and engages members of diverse groups and identities.Responsibility – We are accountable – individually and in teams – for our behaviors, actions and results. We keep commitments.

Integrity – Integrity and transparency are critical to our institutional effectiveness. We pursue the highest level of personal, intellectual, academic, financial and operational integrity within the University community. 

EMU Mission, Vision, Values

Student Engagement and SuccessDescriptor: Foster an environment where students have the greatest opportunity to engage in purposeful learning and involvement so that they can successfully meet and maximize their education goals.

High Performing Academic Programs and Quality ResearchDescriptor: Support and foster high quality academic and research programs that serve a demonstrated need in the community/region.

Institutional EffectivenessDescriptor: Ensure EMU has the systems and processes in place that support the mission of the institution as efficiently as possible, while fostering innovation, diversity and ethical conduct in the workplace.

Service and EngagementDescriptor: Support community engagement and collaborations that create a mutually beneficial exchange of knowledge and experiences.

Strategic Themes

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013400,000

450,000

500,000

550,000

600,000

509,713491,598 485,600

473,649461,559

450,557470,327

479,990 471,339 473,562

58,310

59,22560,688

62,143

62,00262,644

66,19765,193

63,806 61,219

Undergraduate Graduate

SCH Total University(by Academic Year)

2004 2005 2006 2007 2008 2009 2010 2011 2012 201340%

50%

60%

70%

80%

90%

100%

Undergraduate Graduate

SCH Mix Total University10.3%

10.8%

11.1%

11.6%

11.8% 12.2%

12.3%

12.0%

11.9%

11.4%

89.7% 89.2% 88.9% 88.4% 88.2% 87.8% 87.7% 88.0% 88.1% 88.6%

SCH by College 2006 vs 2013

327,435

59,278

72,833

51,748

34,294

SCH by College in 2006

CAS

COB

COE

CHHS

COT

322,26959,313

48,341

68,798

33,883

SCH by College in 2013

Total Enrollment Trends among Michigan Publics and UT

EMU CMU GVSU OU Toledo WMU 15,000

20,000

25,000

30,000

Fall 08 Total Fall 09 Total Fall 10 Total Fall 11 Total Fall 12 Total Fall 13 Total

Undergrad Enrollment Trends among Michigan Publics and UT

EMU CMU GVSU OU Toledo WMU 10,000

15,000

20,000

25,000

Fall 08 UG Fall 09 UG Fall 10 UG Fall 11 UG Fall 12 UG

Graduate Enrollment Trends Among Michigan Publics and UT

EMU CMU GVSU OU Toledo WMU 2,000

4,000

6,000

8,000

Fall 08 GR Fall 09 GR Fall 10 GR Fall 11 GR Fall 12 GR

New Student Enrollment in MI Publics (FTIACs and new Transfer students)

EMU CMU GVSU OU WMU3,000

4,000

5,000

6,000

7,000

2011 2012 2013

EMU Budget Update – June 2014

• Twelfth in a series of budget forums and discussions with President Martin that began in the Summer of 2009

• Focus of budget forums is on Eastern’s budget, financial position and external economic factors that are impacting us

Today’s Topics• Current Financial Position • Fiscal Year 2013-14 – Outlook • Fiscal Year 2014-15 – Budgets – General, Auxiliary, Capital Funds

o Budget development contexto Adopted budget key assumptions and major actions

• Q & A / Open Discussion

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Current Financial Position

• Five years from FY2008-09 through FY2012-13 represented period of unprecedented campus capital investment – over $220M invested

• Capital investment contributed to stabilizing/growing enrollment in challenging competitive environment, but as expected, additional borrowing and use of reserves adversely impacted Eastern’s financial position and Balance Sheet

FY2008-09 FY2012-13Long Term Debt $ 146M $ 240MUnrestricted Net Assets $ 54M $ 25M

• Moody’s (June 2013) – rating affirmed • Standard & Poor’s (September 2013) – rating downgraded• Higher Learning Commission (HLC) (August 2013) – Notification of potential

Financial Panel review

Financial Challenge

• Improve financial position and balance sheet while at the same time increase ongoing funding for capital investments to at least $15M annually

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Financial Position – Rating Agencies Views

• Similar comments cited in Moody’s and S&P’s 2013 reviews and reports

 Positive Factors • Stabilized enrollment and large enrollment base• Expense control and cost containment actions• Manageable debt service burden at 5% of total operating expenses

and broad diversity of revenues available to cover debt service • Net tuition revenue growth  Negative Factors • Full-accrual operating deficits although positive on cash basis • High financial leverage - reserves to debt • Slim financial resources - reserves to annual expenses • Declining demographics of graduating high school students in

Michigan combined with heavy reliance on in-state students• Diminished, strained state funding environment

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Current Year Outlook

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• FY2013-14 year ends June 30, 2014 • Operating deficits last two years FY2011-12 and FY2012-13 – following

three years of surpluses  General Fund ($296M budget) • Projected Credit Hours – 533,500

o Small (0.8%) decline vs. FY13 but 1% increase budgetedo Shortfall in Winter - higher Dec. graduates, lower new students –

and Spring o Net revenue below budget for SCH and Financial Aid expense

• Expenditures in total at or below budget• Deficit expected in General Fund  Auxiliary Funds and Capital  • Auxiliary Funds ($44M budget)

o Surplus expected – housing, dining revenue over budget• Capital ($9M budget)

o On track to budget

FY2014-15 Budget Development - Context

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Credit Ratings and HLC• FY15 budget must take steps to improve financial performance and position • Restoring operating surpluses demonstrates commitment to financial

improvement and is first step in long-term financial position improvement  GASB #68• Accounting rule change requiring that the State’s net MPSERS pension

liability be reflected in participants financial statements• Significant (non-cash) impact to Eastern’s financial statements beginning in

FY2014-15 Enrollment and Credit Hours• In today’s highly-competitive Higher Ed environment in Michigan, not

realistic to assume continuing enrollment growth annually in budgets• Realistic credit hour and revenue assumptions significantly improves

probability of year-end surpluses to build adequate reserves  Focused Priorities and Resource Re-Allocation• Challenge to balance budget at lower credit hours while supporting priorities

of successful PA program launch, enrollment growth, safety/security, technology

FY 2014-15 Budgets Approved by Board of Regents

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• Yesterday, FY15 budgets adopted by Board of RegentsoGeneral Fund OperatingoAuxiliary Funds oCapital Spending

 General Fund (millions) Amount Percent of Total Revenues Tuition and Fees $ 219.8 73% State Appropriation 72.4 24 All other revenues 10.4 3 Total GF Revenue $ 302.6 100% Expenditures Personnel – Salaries & Benefits $ 194.3 64% Financial Aid 43.8 14 SS&M 36.3 12 Utilities, Debt Service, Asset Preserv. 21.8 8 All other expenses and transfers 5.7 2 Total GF Expense $ 301.9 100%Budgeted Surplus $ 0.7

FY 2014-15 General Fund Highlights and Key Assumptions

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• Student Credit Hour assumption – 524,880 hourso 8,620 hours below FY2013-14 projection; 19,146 below FY2013-14 budget o New students in Fall – 2,600 FTIACs, 1,850 Transfers, 1,200 Grad

• Tuition & Fee rate increase of 3.2% (State cap to receive performance funding)o Program fee increases higher for some 300 level courses and above

• State funding increased by $4.8M• Total GF revenue up $6.2M (2.1%) compared with FY13-14• Total GF expenditures up $5.5M (1.9%) - $700K surplus budgeted• Expenditure Increases:

• Financial Aid - $4.6M (11.7%) increase• Public Safety - $820K for additional officers and associated expenditures• Athletics – higher Game Guarantee revenues fund $550K operating

expenditure increase and $500K capital for Rynearson turf replacement • Significant cost savings – over $5M in General Fund, $800K Auxiliaries • Increased operational - generated funding for capital, but still not adequate • FY15 operating budgets more robust

o Realistic credit hours o Alignment of credit hours and associated financial aid o Full-accrual breakeven with 1% contingencyo Consistent with University Budget Council Recommendations

FY 2014-15 Auxiliary and Capital Budget Highlights

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Auxiliary Activity Funds• Room & Board rate increases of 4.0% approved by Board of Regents

in March; Apartments re-structured to contract-based similar to residence halls

• Auxiliary fund revenues of $49.2M include Dining $17.7M, Residence Halls $16.2M, Apartments $3.8M, Parking $3.7M, and all other $7.8M

 Capital Budget and Three Year Projection • Approved FY15 capital budget of $12.6M. Priority placed on

supporting CHHS growth, campus technology, and safety and security. Over 70% of total capital spending being invested in these priority areas, including:o Rackham Renovations $ 4.8Mo Campus technology $ 2.7Mo Safety and Security $ 920Ko PA Program $ 750K

• Three year capital spending projection of $36.9M with academic facility enhancements and technology investment accounting for about half ($18.8M). Next major residence hall renovation planned is Wise Hall in Summer of 2015.

Employee Total Compensation Changes

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The budget includes the following total compensation changes during the next fiscal year for non-bargained-for employees (AP, AC, CA, AH classifications): Retirement Plan • Effective November 1, 2014, the EMU contribution for employees

hired prior to January 1, 2013 will be 9%; for employees hired on or after January 1, 2013, the EMU contribution will be 5% and if the employee contributes 4%, EMU will match that 4% (maximum EMU contribution of 9%)

 Health Care Cost Sharing • Effective January 1, 2015, employee cost sharing of health care costs

will be increased from approximately 9% to 12%

Merit Increase• The budget includes a 2% merit pool effective November 1, 2014Human Resources will be scheduling information sessions in the month of July including group and individual sessions

Summary and Look Ahead 

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• Improving Eastern’s financial position is a high priority that will take time to fully achieve. We are in a highly competitive Higher Education market in Michigan and the pace of improvement in our financial position must be balanced with the University’s other program and capital needs.

• The FY15 budget takes an important step in that direction. With more conservative revenue assumptions and budgeted surpluses, the probability is significantly higher of realizing surpluses and adding incrementally to our reserves.

 • Future University budgets will need to build on the progress made

with the FY15 budget. Identifying and implementing both cost savings and revenue enhancements will be required – in either case, innovation will be essential.

  ----------------------------------------------------------- Comments……Questions?