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Human Resources Summit – Fiscal Affairs Update
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Indiana University
Fiscal Affairs Update
September 25, 2013
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Human Resources Summit – Fiscal Affairs Update
Overview
 Higher Education Headwinds
 IU Financial Trends
 Long Term Planning
 Initiatives
 Upsides
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Human Resources Summit – Fiscal Affairs Update
Financial Backdrop
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Strong Financial History
Moody’s Upgrade to Aaa Post Financial Crisis
Continued Focus on
 Business Analytics
 Cost Containment
 Alternative Revenue Streams
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Not Immune to Pressures of the “New Normal”
Higher Education Headwinds
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Significant pressures on tuition rate increases
Decreased household wealth
National focus on student debt levels and student loan defaults
Downward trend in state appropriation
Declines in research spending
Escalated regulatory and accreditation risk
Investment volatility
Health Care Exposure
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Human Resources Summit – Fiscal Affairs Update
Perception of a Higher Education Degree Stressed
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Rising Student Loan Burden and Defaults Taint Perception
 Nationally, Student Loan Defaults Have Doubled Since 2003 (from 4.5% to 9.1%)
 IU has Particular Issues on some of our Regional Campuses
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Perception that Starting Salaries are not Keeping Pace with Cost of Degree
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Getting a Degree Costs Less Than Perceived
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Perception that Increased “Lifestyle Spending” is Attributable to
Institutions of Higher Education
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Human Resources Summit – Fiscal Affairs Update
Research Funding Stressed
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Federal Research Funding Slowing
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Decline in award already granted
Decline in new awards
Sequestration cuts
Increased competition for the same “pie”
Private Foundation Funding “Lumpy”
Private Research Universities have had more Success Growing Grant
Revenues in Past Two Years
 But, for both public & private higher rated universities have fared better than
lower rated
 Larger research universities (>$3B) have fared better than smaller
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Private Foundation Funding “Lumpy”
Research Expense Reductions Lag Cuts to Grant Revenue Growth
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Human Resources Summit – Fiscal Affairs Update
Investment Volatility
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Operating Funds
 Concentration in Fixed Income due to State Constitution
 Rising Interest Rate Environment will Stress Returns
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Endowment
 Volatility in Investment Returns
 Gift Revenue Difficult to Predict
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Human Resources Summit – Fiscal Affairs Update
Health Care Exposure
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Rising Health Care Costs
 Indiana – One of Unhealthiest States
 Uncertainty Over Implementation of Health Care Reform
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Indirect Exposure to IU Health
 Health of IU Health Business Model will Impact School of Medicine
 Reimbursement Pressure from all Payers
 Limited Rate Increases and Potential Funding Cuts from Medicare and Medicaid
 Potential Decrease to Graduate Medical Education Funding
Human Resources Summit – Fiscal Affairs Update
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Trends Are Unsustainable
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Increase Focus on Governance & Management to Provide Long Term
Sustainability
Human Resources Summit – Fiscal Affairs Update
Moody’s Investors Services, July 2013
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Must Strive to Increase Cost Efficiency in Light of Decelerating/ Stressed
Revenue
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Hallmarks of Governance & Management
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Board & Senior Management Composition
Oversight & Disclosure Practices
Short – and Long- Term Planning
Self-Assessment and Benchmarking
Government Relations
Human Resources Summit – Fiscal Affairs Update
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IU Long Term Financial Model Dashboard
and Strategic Ratios
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Human Resources Summit – Fiscal Affairs Update
Initiatives
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Internal, Cross-functional Consulting Team
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Public-private partnerships/ asset monetizations
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Functional reviews
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Identify new revenue streams
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Managed Print Services
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Energy
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Cash efficiency
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Investment returns
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Capital structure
Human Resources Summit – Fiscal Affairs Update
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Enough?
- Higher Education as a National Right
- Extended 0% Tuition Increase
- Further Cuts in Federal Spending
- Further Cuts in State Appropriation
What would we do?
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Human Resources Summit – Fiscal Affairs Update
Upsides
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Current Position of Financial Strength
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Fundamental Demand for Higher Education is Still High
 Stronger Earnings by Educational Attainment
 Unemployment Inversely Related to Educational Attainment
 Recent graduates are having a tougher time finding jobs
 Global Economy Drives Demand for Educated Worker
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No Viable Substitute for a Higher Education Degree
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Strong Demand for IU Brand
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Relatively Speaking, Indiana is Financially Healthy and the Recent Tone at
the State has been Positive