Mount Holyoke Financial Model: Opportunities

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Mount Holyoke Financial Model Opportunities
Challenges

• December 7, 2009

Confidential Presentation
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Where Are We 09 And 10 Budget At a Glance
( in millions)
Expenditure Breakup
What does it cost to educate our Students?

• Salaries Wages (SW) make up the largest
  component of expenses at over 50 of total
  expenses in any given year
• An additional 17 is earmarked for benefits in
  the past 5 years this category has grown at more
  than twice the rate of SW
• Other Expenses (utilities, operating reserves,
  restricted and other expenses) accounted for
  another 31 of the total expenses
• Student tuition and room board fees, net of
  financial aid, account for nearly 65 of total
  revenues for the College
• An additional 19 is obtained from our Endowment
  Investments and has risen as a percentage of
  total revenues over the past five years
• The College can draw between 4.5 and 5.5 of a
  rolling historical 12 Q calendar year average of
  the Net Endowment fund value(1)
• Gifts and grants provide nearly 15 of total
  revenues

103.4
104.1
Revenue Breakup
How do we pay for all of this?
102.2
103.0
(1.3)
(2)
FY09 Deficit Funded With Reserves/Unrestricted
Bequests. 1.1M of Unrestricted Bequests in FY10
Budget.

• ___________________________
• Source MHC Financial Model.
• Note Fiscal year ending June 30.
• Net of Debt borrowings against the Endowment
  fund.
• Net of financial aid to the students.

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How We Got Here Pushing on a String

• Expenses
• Since fiscal year 2005 our total costs have risen
  by 21
• Salaries and Wages are up 18
• Benefits jumped 41
• Facilities, reserves and other expenses increased
  15
• Revenues
• Overall revenues increased 19 since fiscal year
  2005
• Costs were covered by a 24 increase in tuition,
  room and board revenues over the same time period
• Financial aid increased by 30 as student ability
  to pay was stressed
• Endowment draw increased by 26
• Gifts and grants increased by 1

21
18
41
15
19
24
26
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We Have Managed The High Historical Increase In
Expenditures By Exceptional Growth In Endowment
And Tuition Revenues
___________________________ Source MHC Financial
Model.
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4
What Does It Cost To Run MHC
Key Cost Items
Key Cost Drivers
Salaries Wages

• FTE headcount
• Salary increases
• Union, Tenured, etc

FY 2009 Cost Breakup 103.4mm
Benefits

• Bright Horizons
• Employee Tuition Program
• FICA
• Health Insurance
• Pension

Utilities

• Depreciation
• Dumping, Electricity, Gas, Oil, Sewer and Water
• Facilities
• Insurance
• Maintenance
• Marketing
• Reserves
• Supplies
• Other student operational expenses

Operations
Operating Reserves
Other
Restricted
___________________________ Source MHC Financial
Model and FY09 Expenses Breakdown.
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Taking A Closer Look At Academic Affairs,
Salaries Wages
Dean of Faculty is the largest Department by cost
As well as the largest by headcount
FY 2009 103.4mm
Total FTEs 835
(2)
(1)
Faculty make up 27 of total headcount at MHC
And 40 of total Salaries Wages at MHC
Total FTEs 835
FY 2009 53.5mm

• ___________________________
• Source MHC Financial Model, FY09 Expenses
  Breakdown and MHC preliminary FY09 and FY10
  Budget.
• Other includes Alumnae Association expenses
  (1.9mm), Dining Services/Blanchard expenses
  (7.9mm) and Restricted Expenses (11.0mm).
• Includes 219 FTEs from tenure faculty, tenure
  track faculty and other faculty.

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What Do Benefits For MHC Staff Cost?
Benefit Rates
Breakup of FY 2009 Benefits

• Faculty and Exempt Staff 33.5
• Non-exempt and Bargaining Unit 33.25
• Temporary Staff 9.0

Total 17.9mm
Health Insurance
Benefit Horizons Other
Employee Tuition Program
Pension
FICA

• Cost 5.5mm
• For employees with FTE gt 80, the college shares
  75 of the cost

• Cost 0.8mm

• Cost 2.4mm
• Tuition benefits for employees and their
  dependents (MHC Exchange Program)
• Represents opportunity cost, minor cash costs

• Cost 5.2mm
• Pension costs calculated using the estimated rate
  at which the obligation for pension benefits
  could effectively be settled (6.5 currently)

• Cost 3.9mm
• Social Security and Medicare taxes paid by the
  college as well as the employees

___________________________ Source FY09 Expenses
Breakdown.
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A Closer Look at Facilities, Utilities,
Restricted, Reserves And Other Expenses At MHC
Key Observations
Breakup of FY 2009 Facilities Other Costs

• Operating reserves are contributions towards
  future replacements costs and are currently
  underfunded
• Utilities consist of Electricity, Gas, Water,
  Dumping, Sewer and Oil expenditures with Oil
  Gas accounting for 13 of FY2009 Expenses
• MHC plans to postpone or reduce budgets of up to
  1.1mm in facilities projects

Total 32.0mm
Other Expenses Continue To Increase
___________________________ Source MHC Financial
Model and FY09 Expenses Breakdown.
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Where Does The Money Come From?
Key Revenue Sources
Key Revenue Drivers
Students Revenue

• Discount Factor
• Room Board Fees
• Student Tuition
• Number of Students
• Tuition Fee

FY 2009 Revenue 102.2mm

• Net Fund Values
• Last 12 quarters balance
• 4.5 - 5.5 draw
• Value of underlying assets, performance

Endowments
Gifts Grants

• Composition of Donors
• Nature of Grants
• Past vs. Future expectations

___________________________ Source MHC Financial
Model.
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9
Net Student Revenues Drive Budget
Net Student Revenues
Historical Projected Trends
Change in Total Number of Students
NA
Change in Tuition, Room Board Fees
Discount Factor
Despite Increase In Students, Net Student
Revenues Are Not Growing Due To High Discount
Factor
___________________________ Source MHC Financial
Model.
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Gifts Grants Potential Impact of The Financial
Crisis?
Overview of Capital Campaign(1)
85 of The Pledges Have Been Received In Cash
Current Total(2) 186.4mm / Goal 300mm
Total Gifts Pledges Received(2) 186.4mm
175.0
158.9mm in collected cash contributions have
been fully reflected in MHCs historical
financials from FY06 up to today
92.8
50.0
45.0
30.0
The remaining 27.5mm in pledges has not yet been
factored into the projections until cash
collection can be determined
Historical Projected Trend
44.6
( in mm)
05-09 CAGR
26.3
22.7
0.0
0.0
0.3
(3)

• ___________________________
• Source MHC Financial Model, FY09 Expenses
  Breakdown and website.
• The Campaign is set to conclude in 2012.
• As of 11/30/09.
• Includes Annual Matching Gifts.

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How Are Our Endowment Dollars Invested?
Breakup of Investments
Facts Findings

• The Endowment fund has grown consistently in size
  peaking in value on 6/30/2008 at nearly 658
  million
• The Endowments low point was 498 million on
  6/30/09
• Peak to trough decline (hopefully) was 24.3
• Currently MHC has nearly 23 or 116.6 million
  invested in non-marketable assets

As on 09/30/09 530.5mm
Available Endowment Balances(1)
19
658
531
475
422
386
362
The decline in Endowment Value reflects
performance of the fund, cash draw (4.5 - 5.5)
and cash contributions from the capital campaign
(72mm)
(2)
(2)

• ___________________________
• Source MHC preliminary investment performance
  report and MHC Financial Model.
• Represents the average market value of the
  Endowment fund and debt outstanding, calculated
  for the past twelve quarters.
• Shows the balance of the Endowment Fund on the
  specified date.

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Where Do We Stand Now?
Revenues vs. Expenses
Net Surplus / Deficit from Operations
(1.2)
(1.1)
The Operating Deficit For FY 09 Was Funded From
Previous Savings And Unrestricted Bequests. 2010E
Budget Includes 1.1M of Unrestricted Bequests
___________________________ Source MHC Financial
Model.
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Marginal Impact of Change In Key Economic Drivers
On Budget
( in 000s)
___________________________ Source MHC Financial
Model.
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Where To From Here

• Despite substantial increases in costs, MHC has
  done a good job in meeting budgetary goals
  through revenue gains in student tuition, gifts
  and grants as well as solid performance in the
  Endowment Fund and the prudent launch of a 300mm
  capital campaign
• However, the current global financial crisis is
  impacting all institutions, especially academic
  ones. This is highlighting the buildup of
  financial stress points
• In addition to the impact of the financial crisis
  on endowment, gifts and students ability to pay,
  MHC has other challenges to contend with
• Shrinking pool of full-pay qualified students
• Small liberal arts education model
• High cost per student education model, nearly 69
  in labor costs
• Large 800 acre campus with relatively old
  physical plants facilities
• Under-reserved future capital commitments versus
  depreciation

___________________________ Labor costs include
Salaries Wages and Benefits expense.
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Where To From Here (Contd)

• The MHC Financial Model is at an inflection
  point, balancing increasing costs against
  revenues will be increasingly difficult in a
  world of 17.5 real unemployment and education
  sticker prices in excess of 50,000 / year. While
  the capital campaign is essential to maintain a
  workable model, it may not be sufficient
• Inflection points invite informed discussion of
  alternatives. MHC is not alone in this
  experience. But it is unique in its core cultural
  and institutional strengths that enable it to
  address these issues constructively as a community

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