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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
Strong Financial History
Moody’s Upgrade to Aaa Post Financial Crisis
Continued Focus on
Business Analytics
Cost Containment
Alternative Revenue Streams
Not Immune to Pressures of the “New Normal”
Higher Education Headwinds
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
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
Perception that Starting Salaries are not Keeping Pace with Cost of Degree
Getting a Degree Costs Less Than Perceived
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
Federal Research Funding Slowing
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
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
Operating Funds
Concentration in Fixed Income due to State Constitution
Rising Interest Rate Environment will Stress Returns
Endowment
Volatility in Investment Returns
Gift Revenue Difficult to Predict
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Human Resources Summit – Fiscal Affairs Update
Health Care Exposure
Rising Health Care Costs
Indiana – One of Unhealthiest States
Uncertainty Over Implementation of Health Care Reform
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
Must Strive to Increase Cost Efficiency in Light of Decelerating/ Stressed
Revenue
Hallmarks of Governance & Management
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
Internal, Cross-functional Consulting Team
Public-private partnerships/ asset monetizations
Functional reviews
Identify new revenue streams
Managed Print Services
Energy
Cash efficiency
Investment returns
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
Current Position of Financial Strength
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
No Viable Substitute for a Higher Education Degree
Strong Demand for IU Brand
Relatively Speaking, Indiana is Financially Healthy and the Recent Tone at
the State has been Positive