FinancialAnalysisofThe

UniversityofMinnesota
HowardBunsis
ProfessorofAccoun2ng,Eastern
MichiganUniversity
Treasurer,Na2onalAAUP

1
Roadmap
OverallFinancialCondi2onoftheUniversity
DoestheUniversityhaveReserves?
Ra2onsandBondRa2ngs
AssetAnalysis
RevenueAnalysis:Tui2onandtheStateAppropria2on
EnrollmentandTui2on(price)
StateofMinnesota
ExpenseAnalysis:Instruc2onandFacultySalaries
PeerAnalysis
Administratorsalariesandstanglevels
Classsize
Athle2cs
Conclusions
2
DataSources
Auditednancialstatements
UMIns@tu@onalResearch(enrollment,tui@on,numberofemployees,budget)
PresidentofUMBudgetPresenta@ons;SenateCommiJeeonFinanceand
Planningminutes
StateHigherEduca@onExecu@veOcers(SHEEO)reportsonappropria@ons
StateofMinnesotaComprehensiveAnnualFinancialReport
MinnesotaManagement&Budgetforstateforecasts
CenteronBudgetPolicyandPriori@esreportonstatescalgaps
USCensusBureauforeduca@onalaJainment
BureauofLaborSta@s@csforUnemploymentRates
IPEDS(IntegratedPostsecondaryEduca@onDataSystem)
AAUPSalarySurveys
CommonDataSet
EADA(EquityinAthle@cDataAnalysis)
USATodayforathle@crevenues
3
AuditedStatementsvs.Budgets
TheauditednancialstatementsareNOTthesameasabudget
Abudgetisaplanonwhatfuturerevenuesandexpenseswillbe.
Theadvantageisthattheyare2mely
Theauditednancialstatementsreportwhatactuallyhappened;
butweonlyhaveresultsthrough2010.Theadministra2onhas
the2011results,buttheyarenotyetpubliclyavailable
Budgetsareimportant,butwelearnmuchmorefromthe
auditedstatementsthatwedofrombudgets.
AllwehearaboutarebudgetshorVallsandholes,andthenwe
discusshowtheywillbelled.
Thisdiscussionhasnothingbutbadop2ons
Theremainderofthispresenta2onwillprovideadierent
perspec2ve
4
WhatEn@@esareCoveredintheAudited
FinancialStatements?
Thenancialrepor2ngen2tyfortheUniversityofMinnesotaincludes
thenancialresultsofthevecampuses(TC,Crookston,Rochester
Duluth,andMorris)
BlendedComponentUnits:Twocomponentunitsthatprovideservices
en2relyfortheUniversitysownbenet.GASB39requiresblended
presenta2on-combiningthecomponentunitsandUniversitynancial
informa2ontogether,displayedasoneen2ty.
RUMINCO,Ltd.isawhollyownedsingleparentcap2ve
insurancecompany.Althoughitislegallyseparatefromthe
University,RUMINCO,Ltd.isreportedasifitwerepartofthe
Universitybecauseitssolepurposeistohandleinsuranceonbehalfof
theUniversity.
UMoreDevelopmentLimitedLiabilityCompany(LLC):awholly
ownedcompanywithapurposeofprovidingoversightand
managementfortheplanninganddevelopmentfortheUniversitys
UMoreParkproperty.ThoughUmoreislegallyseparate,itspurpose
dictatesthatthenancialresultsarecombinedwiththeUniversitys.
5
WhatEn@@esareNotIncluded
Discretelypresentedcomponentunitsarereportedin
separatecolumnsandnotcombinedwiththe
Universitysresults.GASB39requiresdiscrete
presenta2onofcomponentunitswhentheresources
heldbytheseen22escanonlybeusedby,orforthe
benetof,theUniversity
Thecomponentunitsare:
UniversityofMinnesotaFounda@on
MinnesotaMedicalFounda@on
MinnesotaLandscapeArboretumFounda@on
Minnesota4--HFounda@on
UniversityAlumniAssocia@on
UniversityGatewayCorpora@on
UniversityofMinnesotaPhysicians
6
ComponentUnits[All501(c)(3)]
Source:2010AuditedFinancialStatements 7
JointVentures
Ajointventureisalegalen2tyorotherorganiza2onthatresultsfrom
acontractualagreementandthatisowned,operated,orgovernedby
twoormorepar2cipantsasaseparateandspecicac2vitysubjectto
jointcontrol,inwhichpar2cipantsretainanongoingnancialinterest
orresponsibility.
MorrisRegionalFitnessCenter(RFC):TheUniversityprovideda$100k
construc2onloantotheRFCin2003isrepaidover20years.Tohelp
fundtheopera2ngcostsoftheRFC,theUniversitycollectsstudent
feesinanAgencyfund,whicharedistributedtotheRFC.
BroadbandOp@calResearch,Educa@on,andSciencesNetwork:The
University,incollabora2onwithU-Iowa,IowaStateandUWbuiltand
operatesaregionalop2calnetwork.Thissupportsteachersand
researchers,andallowstheUniversitytopurchasecommercial
internetinbothChicagoandMinneapolis.Opera2ngcostsareshared
amongthe4universi2es,andwere#391kin2010
8
BalanceSheet
9
Alloftheresultsfromhereinwillexcludecomponentunits
TheUniversityhasover$4.5billionofassets
Solidandsteadyincreaseinassets
Theliabilitypercentageincreasesslightly,butthelevelissimilar
tootherpublicins@tu@ons
Source:Auditednancialstatements
BalanceSheetGraphically
10
NetAssetAnalysis
11
Therewereover$3billionofnetassetsattheendof2010;over$1.8
billion(lasttwocategories)isnotrelevantinanalyzingnancial
freedomandexibility
However,thereareover$1BILLIONofreserves(top2categories),
includingover$600millionofcompletelyunrestrictedfunds
NetAssetsDenedbytheAdministra@on:
InvestedinCapitalAssets
Investedincapitalassets,netofrelateddebt;
Thiscategoryincludesproperty,plant,and
equipment,netofaccumulateddeprecia2on,
reducedbytheoutstandingbalancesofdebt
agributabletothesecapitalassets.
Source:2010AuditedFinancialStatements,
page6
12
NetAssetsDenedbytheAdministra@on:Restricted
Restrictednetassetsaredividedintotwo
categories,expendableandnonexpendable
Expendableassetsareavailableforexpenditureby
theins2tu2on,butonlyinaccordancewith
restric2onsplacedontheirusebydonorsandother
externalen22es.
Nonexpendableassetsarealsoexternallyrestricted,
butarerequiredtoberetainedinperpetuity,
includingtheUniversitystrueendowmentsand
ins2tu2onalcontribu2onstorefundableloan
programs.
Source:2010AuditedFinancialStatements,page5
13
NetAssetsDenedbytheAdministra@on:
Unrestricted
Unrestricted:Includesassetsthatarenot
subjecttolimita2onsors2pula2onsimposed
byexternalen22esandthathavenotbeen
setasideforcapitalorendowmentpurposes.
Theseassetsareavailableforanylawful
purposeoftheins2tu2onandinclude
resourcesthatmaybedesignatedforspecic
purposesasdeterminedbymanagementor
theBoardofRegents.
Source:2010AuditedFinancialStatements,page5
14
Reserves
15
TotalNet
Assets
=
Investedin
CapitalAssets
+
Restricted
NetAssets
+
Unrestricted
NetAssets
Expendable Non-expendable
Reservesor
Expendable
NetAssets
=
Restricted
Expendable
+
Unrestricted
NetAssets
DiscussionofReserves
Reservesarethenumericalsumofrestricted-
expendablenetassetsandunrestrictednet
assets.Theyareanindica2onofnancial
exibilitybythenancialcommunity,and
theyareusedextensivelyinbondra2ngs
Theadministra2onmayclaimthereare
restric2onsonunrestrictednetassets,sothey
shouldnotallcount.Thereareover$600
MILLIONofunrestrictednetassets!
16
FurtherDiscussionofReserves
Unrestricted:Theadministra2onwillclaimsomeofthese
havebeencommigedbytheBoard.However,theBoard
hastheabilitytoundoanyofthesedecisionifnot,the
externalauditorswouldputtheamountintherestricted
category
Theadministra2onwillalsosaythatwearenotallowed
tospendreserves;wecanonlyusethismoneyforthis,and
thatmoneyforthat.
RestrictedexpendablecanNOTbespentfreely,andcannot
bespentonfacultysalaries,forexample.Examplesinclude
futuredebtpaymentsorscholarships.
However,thefactthatthesefundstakecareofsomefuture
obliga2onsmaketheUniversitybegero.Thisiswhybond
ra2ngagenciesincludethiscategoryintotalreserves
Mortgageexample
17
BoJomLineReserves:
PrimaryReserveRa@o
18
Primaryreservera@o=Reserves/TotalExpenses
Wewillseewhether39%islargeornot
Expendablereservesdeclineasfundsmovefrom
commiJedtoactuallybeingspent.
DebtandtheViabilityRa@o
19
Theviabilityra@oisdenedasreservesdividedbyinterest-bearingdebt
Despiteanincreaseindebt,theviabilityra@oabovedemonstratesthat
Minnesotadoesnothavetoomuchdebt
ReservesRa@osattheUniversityofMinnesota
Totalreservesareover$1.1BILLION
Unrestrictedreservesareover$600Million
Itisverylikelythatbothnumbersarelargerattheend
of2011
Restricted-expendablereserves(500M)cannotbe
spentfreely,buttheirexistencefreesupother
resources.Theyarenicetohave.
Thereservera2osareverysolid
Canthesereservesbeusedfortemporarybudget
shorValls?Absolutely.
Thereisaminimumlevelofreserves(primaryreserve
ra2oof15%)thatisprudent;UMiswayabovethat
level.
20
RevenuesandExpenses
21
Thenetincomera@o=changeinnetassets/totalrevenues
Thepapergainsorlosseshavealargeeect
MoodysRa@oAnalysis
Moodysusesthreera2ostojudgethenancial
condi2onofpublicuniversi2es.
Thenacompositescoreiscompiledbasedon
these3ra2os:
PrimaryReserveRa2o
Aretheresucientreserves?
ViabilityRa2o
Istheretoomuchdebt?
NetIncomeRa2o
Arerevenuesandexpensesinlinewitheachother?

22
MoodysRa@oDeni@ons
Primaryreservera+o:Expendablenetassets
dividedbytotalopera2ngexpenses.
Viabilityra+o:Expendablenetassetsdivided
bydebt.
NetIncomeRa+o:Changeintotalnetassets
dividedbytotalrevenues.
FinalScore=
50%*PrimaryReserveRa2o+
30%*ViabilityRa2o+
20%*NetIncomeRa2o
23
MoodysSummaryScores
24
BondRa@ngRa@os
25
Acompositescoreof4.2isverysolid;5.0isthehighestpossiblescore
ATobeintrouble,thera@ohastobebelow1.75
Thedeclinein2008and2009wasduetothestockmarketdeclineandthe
declineintheStateappropria@on
ActualBondRa@ngs:Moodys
InSeptemberof2010,theUniversityissued$150
millionofdebt.Theproceedswereusedtofundthe
construc2onand/orrenova2onofoneormore
biomedicalscienceresearchfacili2es.
On9/26/2010,MoodysassignedanAa1ra2ng,witha
stableoutlook
Aa1isthe2
nd
highestpoten2alra2ngthatMoodyscan
give,outof23possiblera2ngs.
Atthis2me,wearealsoarmingtheAa1ra2ngson
theUniversity'soutstandinglong-termdebt.
Source:
hgp://www.moodys.com/research/MOODYS-ASSIGNS-
Aa1-RATING-TO-UNIVERSITY-OF-MINNESOTAS-
GENERAL-OBLIGATION--PR_226873
26
Ra@onalefromMoodys
TheAa1ra2ngreectstheUniversity'sstrong
studentandresearchmarketposi2ons,overall
favorableresourcescushioningdebt,and
favorableopera2ngperformanceosetby
decliningstatedemographicsandmodest
liquidity.Thestablera2ngoutlookreects
expectedminimalnear-termnancialresource
growthfrombalancedopera2ngperformance
bolsteredbyinvestmentreturnsandcon2nued
favorablefundraising,nootheran2cipateddebt
issuanceotherthanthatdescribed,con2nued
favorablestudentdemand,andresearch
ac2vity.
27
StrengthsfromtheMoodysReport
Strongmarketposi2onasMinnesota'sagshipresearch
universityandBigTenmember,withenrollmentforFall
2010ofover61,100FTEsandtotalresearchexpensesof
$632millionforFY2010,upfrom$600millioninFY2009.
Overallfavorablebalancesheetresources,withexpendable
andtotalnancialresourcesof$2.0billionand$3.0billion,
respec2vely,providinggoodcoverageofproformadebt,
withexpendableresourcescushioningdebt1.72mes.
Balancedopera2ngperformanceandposi2vecashow
genera2onfromawelldiversiedrevenuebase,with
three-yearaverageopera2ngmarginof-0.1%anda
favorable1.7%forFY2010,opera2ngcashowmarginof
8.9%andaveragedebtservicecoverageof2.52mes.
Sucientself-liquidityoruseofbankfacili2estosupport
variableratebondsandcommercialpaper
28
ChallengesfromtheMoodysReport
Substan@alilliquidinvestments,includingnearly40%oftheUniversity's
consolidatedendowmentfundinprivateequi@es.Monthlyliquidityis
rela@velylowfortheAa1ra@ngat$684millionor92monthlydayscashfor
FY2010,althoughimprovedfromthe$594millionand81monthlydayscash
reportedforFY2009.
Debtstructurewitha25%demanddebtexposurethroughoutstanding
Universitycommercialpapersupportedbyself-liquidity,although
substan@allylowerthanlevelsin2010followingtherefundingofvariable
ratedebtearlierthisyear.
Budgetedstateopera@ngsupportthatwillconstrainopera@ngrevenuesand
performance,withabudgeted7.8%reduc@on($46million)instatefunding
inFY2012osetbyrevenuegrowthfromtui@onandgiss.
Furtherincreaseinleverage,withanexpected$65millionofnewmoney
issuanceexpectedinFY2012tofundanumberofcapitalprojectsandan
addi@onal$60millioninFY2013forstudenthousing.
29
ActualBondRa@ngs:S&P
9/26/2011:S&Plowereditsra2ngsonthe
RegentsoftheUniversityofMinnesotabonds
securedbystateappropria2onsto'AA'from
'AA+'followingitsloweringofthera2ngon
Minnesota'sgeneralobliga2ondebtto'AA+'
from'AAA'
Theoutlookisstable
AAisthe3
rd
highestpoten2alra2ngthatS&P
cangive.
30
S&PReport:EectofShutdown
"Paymentsfromthestaterepresentastandingappropria2on,
meaningthatthelegislaturewouldhavetoactnotto
appropriatefortheretobeaneventofnon-appropria2on,"
saidStandard&Poor'screditanalystRobinPrunty.
"Whenthegovernorandlegislaturefailedtoreach
agreementonthescal2012-2013budgetleadingtoa
governmentshutdown,paymentstotheuniversityforbonds
outstandingweremadeona2melybasis,"Ms.Prunty
added.
Bondproceedswillbeusedtonanceapor2onofthecost
ofconstruc2ngbiomedicalscienceresearchfacili2esfunding
projectsandvariousinfrastructureimprovementsatthe
university'sTwinCi2escampusinMinneapolis.
Thestableoutlookonthebondsreectstheoutlookon
Minnesota.
ThefacultyshouldobtainthefullMoodysandS&Preports
31
CashFlows
32
TheUniversityisgenera@ngposi@vecashowseachyear
Thisisveryimportantevidencetoconrmandsupporttheconclusion
thattheUniversityofMinnesotaisinverystrongnancialcondi@on
TheChangeinNetAssetsvs.CashFlows
33
Thecashowsaremuchsteadierthanthechangeinnetassets
Thechangeinnetassetsareaectedbythepapergainorlosson
investments(nottheendowment)
SummaryofFinancialRa@oAnalysis
Thenancialra2osclearlyindicatethattheUniversity
ofMinnesotaisinverystrongnancialcondi2on.
Thisconclusionisconrmedbytheoutsidecredit
ra2ngagencies
Wewillconrmthisconclusionevenazerthedecline
intheStateappropria2onisanalyzed
ThisdoesnotmeanthattheStateappropria2onis
adequate;wewilldemonstratetheeectthedecline
intheappropria2onhashadontheU
Wewillalsofocusontheadministra2onspriori2es,to
seeiftheyhavebeentruetothecoreacademic
mission.
34
AssetAnalysis
35
UNMhasover$1.6billionincashandinvestments;thisisnotallfreeto
bespent,butwithreservesover$1billion,itpointstosolidnances
TheinvestmentsheredoNOTincludetheendowment;theendowment
assetsareinseparatenancialstatements(about$1.5Billioninassets)
Weseetheeectsofthestockmarketontheinvestmentbalances
Capitalassetshavegrownsignicantly.
2010AssetDistribu@on
36
InvestmentAnalysis
Wheredidthis$1billionininvestmentscome
from?Thegenera2onofcashows;UM
generatesbetween$100Mand$200Min
opera2ngcashowseachyear.Thesefunds
aresome2mesinvested,some2mesusedto
payprincipalondebt,etc.
Whereisthe$1billioninvested?Thenotesto
thenancialstatementstellus.Thereare
dierentpools,eachwithdierentriskand
returnguidelines
37
FurtherInvestmentAnalysis
Theadministra2oninvestsin:
Equi2essecuri2es
Equi2esother(thinkhedgefund)
Governmentandcorporatebonds
Mortgage-backedsecuri2es
In2009,therewere$150Millioninvestedinlowrated
investments;theseweremovedtoAAAratedinvestmentsin
2010
Thereis$41millionincurrencyinvestments,whichcovers29
dierentforeigncurrencies,fromtheEurototheBrazilianReal
andeverythinginbetween(Eurolargest;Yen2
nd
)
Onthedebtside,theuniversityhasmillionsininterest-rate
swaps,theore2callytoreducerisk.Someofthesewere
withLehmanBrothers,andthosewereunwound.
Conclusion:TheUniversityplayshighnance,astheyfeel
theyareinthecashposi2ontodoso.
38
RevenueDollarDistribu@on
39
Source:Annualauditednancialstatements
Theincreaseingrantswasdueinparttothefederals@mulus
ThedeclineintheStateappropria@onissignicant,aswewillsee
Thereisavarietyofrevenuesources,whichishealthy.
RevenuePercentDistribu@on
40
Thedeclineinthe%fortheStateisaectedbytheinvestmentlossaswell
asthelegislature;wewilllatercomparejusttui@onandtheState
Thepercentageshavenotmovedthatmuchoverthese5years
Thefederals@mulusisnotthatbigadeal
2010RevenueDistribu@on
41
RevenueNotes
Tui@onandfeesarereportednetofscholarshipallowances
Grantsandcontractsinclude:
Federalgrants(whichincludePellgrants)
Stateandothergovernmentgrants
Nongovernmentalgrantsandcontracts
Revenuesfromsalesandservicesofeduca@onalac@vi@esincludethe
LearningAbroadCenter,royaltyreceiptsfromsalesofproductsusing
Universitypatentsortechnology,@cketsalestoNorthrop
performances,andresearchworkforoutsidebusinesses.
Auxiliariesaredesignedtobeself-suppor@ng,andtypicallyinclude
housing,dining,bookstore,studentunion,andathle@cs
Investmentincomeincludes:
Interestanddividendincome
Realizedgainsandlossesonsellingstock
Unrealizedgainsandlosses
42
NoteonTui@onandFeeRevenue
Source:Note1of2010AuditedStatements
Eec2veforscalyearendedJune30,2010,the
Universitychangeditsprocessofcalcula2ngthe
scholarshipallowancees2mate.Thechangein
processcoincideswiththeEnterpriseFinancialSystem
(EFS)implementa2on,resul2nginamoredetailedand
accuratecalcula2onoftheallowance.Thechangewas
implementedprospec2vely,so2010isnotcomparable
to2009.
Therefore,itappearstui2onrevenuedeclinedfrom
2009to2010;infact,ifthesamerulesappliedto2009
and2010,tui2onrevenueactuallyincreasedfrom
2009to2010.
43
Tui@onRevenueandtheStateAppropria@on:
2002to2010
AmountsinThousands
44
2010appropria@onis
aboutthesameasin2002
Enrollment
Source:OceofIns@tu@onalResearch
45
Overall,thisisverysolidenrollmentgrowth
Undergraduategrowthisdrivingtheoverallgrowth
Spring2011wasup1%overSpring2010
EnrollmentNotes
Source:UniversityofMinnesotaOceofIns@tu@onalResearch
Fall2011NumbersAvailableon10/14/2011

Undergraduate.Studentspursuingprogramsleadingto
associateorbachelor'sdegrees.
Graduate.Studentspursuingagraduateleveldegreeor
cer2cate(masters,doctoral,orpost-bachelor's
cer2cate).
Non-Degree.Astudenttakingclasseswhoisnotcurrently
inaprogramleadingtoadegreeorcer2cate.Includesthe
previouscategoriesofunclassiedandadultspecial,aswell
asmedicalfellowsandhighschoolstudentsenrolledunder
theMinnesotaPost-SecondaryEduca2onOp2onsAct.
Professional.Studentsseekingapost-bachelor'sdegreeor
cer2cateintheDuluthSchoolofMedicineandtheTwin
Ci2esMedicalSchool,LawSchool,SchoolofDen2stry,and
CollegesofPharmacyandVeterinaryMedicine.
46
EnrollmentProle:Class
47
EnrollmentbyCampus
48
TwinCi@esisthemajorityofenrollment,andthishasnotchangedmuchsince2001
TheTwinCi@esgrowthwasstrongfrom2001to2006;wewilllookatthisnext
TwinCi@esEnrollmentbyCollege:
2001vs.2006vs.2010
49
WhereStudentsComeFrom:Fall2010
50
TwinCi@esUndergraduateResidentTui@on(beforefees)
Source:OceofIns@tu@onalResearch
51
Tui@onanalysismustconsiderbothlevelsandchanges;
NomaJerthelevel,studentsandtheirfamiliesfeelthechanges
Tui@onandFees:Minnesotavs.Peers
2011-12Undergraduate
52
PeersasdenedbyFacultyConsulta@veCommiJeeMetricsand
MeasurementsSubcommiJee,September2008
Minnesotais3rdoutof11forin-state,11/11(lowest)foroutofstate
Thereisreciprocalorin-statetui@onforWisconsin,ND,andSD
Source:USNewsandWorldReportfortui@on
ChangesinStateAppropria@on,
Enrollment,andTui@on
53
Sources:Annualauditednancialstatementsforstateappropria@on
OceofIns@tu@onalResearchforenrollmentandtui@on
StateAppropria@onforthe2012-13Biennium
54
Source:HF1101,highereduca@onbudgetbillpassedinJuly2011
Abovenumbersarethebaseappropria@ons
The2012amountincludesa$25millionaddi@on
PerformanceMetricsSetbytheLegislature
IftheUniversitydoesnotmeet3ofthefollowing5metrics,
thenthe2013appropria2oncoulddeclineby1%
1.Increasebyatleast7%,comparedto2009,graduateor
degrees,diplomasandcer2catesconferred
2.Increasebyatleast10%,comparedto2010,thenumber
ofstudentsofcolor
3.Increasebyatleast15%,comparedto2010,theFYE
enrollmentofstudentstakingonlineorblendedcoursesor
thenumberofonlineandblendedsec2ons
4.Increasebyatleast1%thefall2011persistenceand
comple2onrateforfall2010enteringstudents(when
comparedtothe2010ratefor2009enteringstudents)
5.Decrease,byatleast2%,comparedto2009,totalenergy
consump2onpersquarefoot.
55
MorePrescrip@onsfromtheLegislature
TheBoardofRegentsisencouragedtoatleast
propor2onallyreducespendingforadministra2onrela2veto
spendingreduc2onsinotherbudgetareas
Addi2onal1%Carrot(ors2ck)if3ofthe5aremet:
1.Increasenancialaidfor2012>2010
2.Produceatleast13,500totaldegreesonallcampusesin
2012
3.Increasetheundergraduatefourandsix-yeargradua2on
ratesontheTCcampusfor2011-12overthe2009-10rates
4.Producetotalresearchanddevelopmentexpenditures
fromNSFso2012>2010
5.Producesponsoredfundingfrombusinessandindustryso
that2012>2010
ThespecicmetricsaresupposedtobeavailableinOctober
56
ActualMetrics:DegreesConferred
Source:OceofIns@tu@onalResearch
57
ActualMetrics:PersistenceandGradua@on
Source:2010NHSStudentGradua@on/Reten@onReport:12/2010
58
ActualMetrics:StudentsofColor
Source:OceofIns@tu@onalResearch
59
TheBoJomLine
TheStateAppropria2onis21%oftotalrevenues
Therewillbeadropof8%intheStateappropria2on
Thisisadropof1.7%intotalrevenues.
Dollardropof$46million
Whatwegetaremee2ngsdiscussingwhatacademic
cutsareneeded(seenextslideforPresidents
recommenda2onsinJuneof2011)
Arefurloughs/payfreezesnecessaryinanins2tu2on
thathasover$600millionofunrestrictedreserves,
had$175millionprot,$180millionofopera2ngcash
owsin2010?NO!Thisconclusionwillbeconrmed
whenweexamineadministra2vecosts.
60
61
!"#$%&'!!()(*+,*$!-&.(&%$/
0*,1%.2,&/32!456786!986:;<=!
!"#$%&!!()(*+,*$!-&.(&%$/
12
!"#$%!&'%%(%!)*+,%-.!./!-/00%-.12%!+#'$#1313$4
Source:PresidentsJune2011ReporttotheBoardofRegents
ThenewpresidentupdatedthisreportinSeptemberforthe$25Maddi@on
WhatShouldBeDone?
Theappropria@onislower,butthemagnitudeofthecuts,giventhe
overalluniversity,isnotdebilita@ng.
First,giventhelevelofthereduc@onandthehugereserves,arecuts
reallynecessary?Thereareover$600millionofunrestrictednet
assets.Insteadoftalkingbudgetcuts,letstalkaboutreservelevels.
Second,ifcutsaretobemade,theexpenseanalysiswilldemonstrate
thatcutsshouldbemadetoadministra@on
Third,tui@onincreasescanbemademuchlower.
Fourth,theStateisnotbroke,aswewillsee-stopusingtheStateas
anexcusetomakecuts.Yes,theappropria@onislower.Butboth
theStateandUniversityareinstrongnancialcondi@on,as
conrmedbybasicra@oanalysisandtheoutsidecreditra@ng
agencies:
Reminder:TheStateAppropria@onis21%oftotalrevenueforthe
UniversityofMinnesota
62
StateofMinnesota
MoodysgivesthestateanAa1ra2ng(2
nd
highest)
Standard&Poorsdroppedthera2ngtoAA+fromAAA.AA+
isthe2
nd
highestra2ng.ThisiswhatS&PdidtotheUnited
States.
15StateshaveAAAra2ngsfromMoodys(AK,DE,GA,IN,IA,
MD,MO,NM,NC,SC,TN,TX,UT,VT,VA).WisconsinisatAa2
TheStateofMinnesotahasissueswiththebudgetexpected
futurerevenuesarelessthanexpectedfutureexpenses.
However,AbudgetgapisNOTthesameasthestatebeing
broke.
StadiumfortheVikings?If4-0insteadof0-4?
63
SelectedStateBudgetGapsComparedtoOtherStates
Source:CenteronBudgetandPolicyPriori@es,June17,2011
64
MinnesotaManagement&Budget:
September2011EconomicUpdate
Headline:FY2011Revenues$355MillionAbove
Forecast;FY2012Currently$93MillionShort.
The$355millionis2.3%aboveforecast
The$93millionshortisforonly2months,andis4.4%
belowthe2-monthes2mate.
Mostoftheincreasein2011camefrom
individualincometaxesbeinglargerthan
expected
Theeconomyisexpectedtogrowlessthanwas
expectedintheFebruary2011revenueforecast
(lastbigforecastforthestate)
65
MinnesotaManagementandBudget
February2011Forecast
66
StateofMinnesotaTaxDistribu@on
Source:2010StateofMichiganComprehensiveAnnualFinancialReport
67
MinnesotaManagementandBudget
February2011Forecast
68
February 2011 Minnesota Financial Report


30
indicators may help provide a useIul account concerning the path that wage and salary
income has taken since the recession began as well as a general perspective looking
Iorward.
In late 2008 and early 2009, Minnesota businesses responded to a sharp decline in the
demand Ior goods and services by aggressively cutting back on labor costs. In addition to
customary layoIIs, employers resorted to less-traditional cost-saving measures such as
unpaid Iurloughs, curbing entire shiIts, and reducing compensation. According to
DEED`s Iigures, Ior example, as employment in the state declined a revised 3.9 percent
in 2009 Irom a year earlier, the average length oI the workweek also Iell 2.5 percent and
average hourly earnings rose a mere 1.0 percent. The eIIects oI declining employment, a
drop in hours, and slow hourly compensation growth combined to drive down total wage
and salary income in Minnesota a staggering 4.8 percent in 2009 according to the Bureau
oI Economic Analysis (BEA). That was the Iirst annual decline in the state`s wage
income, the largest component oI state personal income, since the 1930s.

The effects of declining employment, a drop in hours, and slow compensation growth
combined to drive down total wage and salary income in Minnesota a staggering 4.8
percent in 2009 according to the Bureau of Economic Analysis (BEA), representing the
first annual decline in the largest component of state personal income since the 1930s.
By early 2010, while job growth remained elusive, income tax withholding collections
were already beginning to suggest Minnesota`s wage income was starting to climb back.
The recession had come to an end, at least technically, and the economy was growing
again. Demand slowly returned and inventories were replenished to more normal levels.
Employers, however, remained cautious through much oI the year, waiting Ior assurance
that the recovery was selI-sustaining beIore committing to costly investments, such as the
hiring and training oI new employees. Employment in Minnesota continued to Iall in
2010, declining 0.7 percent Irom year earlier levels, and hourly compensation climbed
just 1.5 percent, meaning businesses were turning to the less risky options oI squeezing
maximum productivity Irom their remaining workIorce or increasing the hours oI
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StateHigherEdAppropria@ons
Source:StateHigherEduca@onExecu@veOcers(SHEEO):April2011
69
Minnesotahaslowerhighereduca@onappropria@onsthanotherstates
Thechangeinappropria@onshasbeenworseinMinnesotathanother
states
HigherEduca@onAppropria@onas%ofTaxRevenues
Source:SHEEO
70
Average=6.9%
Minnesota=5.9%
StateUnemploymentRates
Source:BureauofLaborSta@s@cs
71
MinnesotaandNa@onalUnemploymentRates
72
IsMinnesotaaHighTaxState?
Source:TaxFounda@on,2011
LowNumbers=LowTaxes
73
Educa@onalAJainment
Source:USCensusBureau,2008
74
UniversityofMinnesotaExpense
Distribu@oninDollars
Source:AuditedFinancialStatements
75
ExpenseDistribu@on:PercentofTotal
76
Instruc@onandresearchrelatetothecoremissionoftheuniversity
Publicservice,academicsupport,studentservice,andins@tu@onal
supportaremostlyadministra@vefunc@ons
DiscussionofExpenses
NomaJerwhatisgoingon,thepercentagedevoted
toinstruc@onshouldneverdecline
Thenextslideshavegenericdescrip@onsofthe
categories
Ingeneral,publicservice,academicsupport,and
ins@tu@onalsupport,despitetheirnames,aremostly
administra@on
Therewasasignicantincreaseinins@tu@onal
support(upperadministra@on).Ifthiswasjust
categoriza@onchanges,thentheadministra@onneeds
toexplainwhatoccurred
Thefollowingdatawillshowthatadministra@vecosts
havebeenincreasingmuchfasterthaninstruc@onal
costs.Thisneedstobeexplained.

77
78
GenericOpera@ngExpenseCategories
1)Instruc@on:Faculty,Lecturers,Adjuncts,Dept.Heads,
Dept.Secretaries,GraduateAssistants,Distance
Educa2on&o-campussites
2)Research:Ins2tutes&Centers,Bioinforma2cs,Matching
Funds,NewFacultyAwards,FacultyResearch
Fellowships,Geospa2alResearch
3)PublicService:Clinicsandcenters,radiosta2on,
Marke2ng

4)AcademicSupport:CollegeDeans,Library,Doctoral
Fellowships,Accredita2on(NCATE,Regional,etc.),
Extendedprogramadministra2on,Faculty
DevelopmentCenter,HonorsProgram,Academic
Advising

79
ExpenseCategories(cont)

5)Ins@tu@onalSupport:PresidentsOce,Business&Finance,
UniversityCommunica2ons,AcademicAairs,
Advancement,PublicSafety,LegalAairs,Human
Resources,GovernmentalRela2ons,Enrollment
Management,AlumniRela2ons
6)StudentServices:AdmissionsOce,FinancialAidOce,
OceoftheRegistrar,LearningCenter,StudentServices,
CampusLife,StudentCenter,Band
7)Opera@onofthePlant:PhysicalPlantOpera2ons&Campus
Plan,Purchasing,Architect&Engineering,University
House,Grounds,U2li2es,Custodial
8)AuxiliaryExpense:Dorms,dining,bookstore,athle@cs
9)Scholarships:Funded,GraduateFellowships
10)Other:DebtRe2rement,Deprecia2on,Miscellaneous

Instruc@onVersusAdministra@veCosts:
2002to2010
80
AdminFunc@ons=Sumofins@tu@onalsupport,academic
support,studentservices,andpublicservice
Source:Auditednancialstatements
PercentageChangesinMajorExpenses:
2002to2010
81
Na@onalReportonAdministra@veCostsinHigher
Educa@on:DeltaProject2010
Source:TrendsinCollegeSpending,1998-2008.
ReleasedJuly8,2010.
hgp://www.deltacostproject.org/
Theshareofspendinggoingtopayfor
instruc2onhasconsistentlydeclinedwhen
revenuesdecline,rela2vetogrowthinspending
inacademicandstudentsupportand
administra2on.Thiserosionpersistsevenwhen
revenuesrebound,meaningthatover2methere
hasbeenagradualshizofresourcesawayfrom
instruc2onandtowardsgeneraladministra2ve
andacademicinfrastructure.
82
DeltaProject:2011Report
ReleasedSeptember14,2011,analyzing1999-2009
Unliketheacross-the-boardcutsseeninpastrecessions,
publicfour-yearins2tu2onsmaintainedspendingon
instruc2onandstudentservicesbyshizingspendingaway
fromadministra2onanddeferringmaintenance.This
approachindicatesamorestrategicapproachtobudget
cutsthaninpreviousrecessions.
Thereportincludesnewdataonemployeecompensa2on,
showinglargeincreasesinpart-2meandgraduateteaching
assistantsandvirtuallyatspendingforemployeesalaries,
butlargeincreasesinspendingforbenets.Unlikeother
spendingareas,whereprivateins2tu2onsoutspentpublic
ins2tu2ons,employeebenetshaveincreasedsignicantly
moreinpublicins2tu2onsthaninprivateins2tu2ons
83
TheFalloftheFaculty:TheRiseoftheAll-
Administra@veUniversityandWhyitMaJers
84
BenjaminGinsbergofJohnsHopkins,July2011
FromInsideHigherEduca2on,7/14/2011:
Ginsbergbemoanstheexpansionoverthepast30
yearsofwhathecalls"administra2veblight"as
personiedbywhathecharacterizesasanarmyof
"deanlets"and"deanlings."
Byvirtueoftheirsheernumberandtheirmanagerial
ratherthanacademicorienta2on,Ginsbergargues,
theseadministratorshaveservedtomarginalizethe
facultyincarryingouttasksrelatedtopersonneland
curriculumthatoncesatsquarelyintheirdomain.
Inprosethatisbyturnspiquant,sarcas2candlargely
dismissiveofmanyadministrators
Na@onalTrendsInSpending:
Source:JohnCur@s,Na@onalAAUP
85
Administra@veSalaries
Source:mndaily.com,1/18/2010
86
PercentageChangesinExpenseItems.2002to2010
TwinCi@esOnly
Source:IPEDS
87
IPEDS=IntegratedPostsecondaryEduca@onDataSystem
RequiredFederaldatafromtheUSDepartmentofEduca@on
Theseresultsconrmthenancialstatementresultsfortheen@reSystem
ADierentExpenseBreakdown
Source:NotestoAuditedFinancialStatements
88
63-64centsofeverydollarisspentonpersonnel,thoughthe
percentagehasdeclined
Wewillseethatinstruc@onalsalariesarenotthemajorityof
thosecosts
BreakdownofInstruc@onalCosts
Source:AuditedFinancialStatements
89
Thisisverytroublingandrevealing
Revealing:instruc@onalsalariesarelessthan20%oftotalexpenses
Troubling:instruc@onalsalariesaretakingabiggerhitthanothersalaries
Othercostsincludeservicesandsupplies
BreakdownofResearchCosts
Source:AuditedFinancialStatements
90
Thecommitmenttoresearchcostshasremainedsteady,as
thesecostshaveincreasedslightlymorethantotalexpenses
The%oftotalincreasedfrom20.0%in2006to21.6%in2010
Peers:Instruc@onalCostsasPercentofTotalExpenses
Source:IPEDS2009Data
91
AveragewithoutMinnesota=30.7%
Minnesota=24.8%
Peers:Ins@tu@onalSupportasPercentofTotalExpenses
Source:IPEDS2009Data
92
AveragewithoutMinnesota=5.5%
Minnesotaishighestat9.4%
DiscussionofIPEDSPeerData
IPEDSbreakdownofexpensesisnotavailablefor2010yet
Forthepeerswithhospital(pa2ent)costs,thosecosts
wereremovedfromtotalexpenses(notthesameas
medicalschoolcosts)
ThisdatausesMinnesotaTwinCi2esonly
Thepeerins2tu2onswereiden2edbyboththefaculty
(FacultyConsulta2veCommigeeMetricsand
MeasurementsSubcommigee)andadministra2on
Toseeiftherewasanycategoriza2onissues,academic
supportwasalsoexamined.Asa%oftotalexpenses,
Minnesotawasthehighestofthegroupat15.9%;the
averageis8.4%
UMspendslessoninstruc@onthanmostofitspeers
UMspendsmoreonadministra@onthanallofitspeers
93
FacultySalariesByRank:TwinCi@es
94
Source:BothIPEDSandAAUPSalarySurvey
FacultySalariesinContext
95
FacultySalariesatOtherCampuses
Source:2010AAUPSalarySurvey
96
FacultySalaryIncreasesvs.Tui@onIncreases
vs.Ins@tu@onalSupport:2002to2011
Source:IPEDS 97
FacultySalariesvs.Tui@onvs.Ins@tu@onal
SupportGraphically
(S&B=SalaryandBenets)
98
FacultySalariesvs.Peers
Source:2010AAUPSalarySurvey
99
NumberofEmployees
Source:OceofIns@tu@onalResearch
EmployeeHeadcountOctober2005to2010
100
Theinferencesarethesameif2006to2010isused,orifjustTCisused
Itisinforma@vethatthelargestchangeisinthenumberofadministrators
Whyistheresuchanincreaseinthenumberofadministrators,whilethe
changesinfull@mefacultyandstudentsismuchsmaller?
NotesonEmployees
Faculty=Includesbothtenured,tenuretrack,andnon
tenuretrackemployees,butexcludesfacultyinprimarily
administra2veroles.Thisincludesvisi2ng,clinical,adjunct,
andRegent'sfaculty.
Professional=ExamplesincludeLecturer,Research
Associate,andTeachingSpecialist
Administra2ve=ExamplesincludePresidents,Chancellors,
Deans,andDirectors
CivilService=ExcludesBargainingUnitemployees
BargainingUnit=ExamplesincludeAFSCMEandTeamsters
GraduateAssistants=ExamplesincludeTeachingAssistants
andResearchAssistants
ProfessionalsinTraining=ExamplesincludePost-Doctoral
Associates,MedicalResidents,and
101
ClassSizeforTwinCi@es
Source:CommonDataSet
102
Theredoesseemtobeasubtleshisinclasssize,especiallyinthe
numberofverylargeclasses
Thenextslidewillanalyzethepercentageofsec@onsineachgroup
ClassSize:PercentofClassSizeGroups
Source:CommonDataSet
103
Athle@cOverview
104
Sourceforallathle@cdata:
EADAorEquityinAthle@csDataAnalysisfromtheUS
DepartmentofEduca@on
USATodayDatabaseonIntercollegiateathle@cs
Athle@cSpendinginContext
105
BreakdownofAthle@cSpending
Source:EADA(EquityinAthle@csDataAnalysis)
106
Theseareenormousincreasesinspending
Theremaybedierentcategoriza@onoraccoun@ngissueswith
football,butthesetypeofincreasesneedtobeexplained
DierentBreakdownofAthle@cSpending
Source:EADA(EquityinAthle@csDataAnalysis)
107
BreakdownofExpensesperUSAToday
108
DiscussionofAthle@cExpenses
Theevidencerevealsverylargeincreasesin
spendingoverthelast5years
Administra2veandcoachessalarieshave
increasedmuchfasterthanfacultyandother
salaries
Teamtravel,uniformsandequipmenthave
increasedatotalof$4millionover5years.Wow.
Thisneedstobeexplainedandjus2ed
GuaranteesarepaymentsfromUMtolower-
divisionteamsforhomegamesatMinnesota
that...
109
Athle@cSalariesinContext
110
Athle@cRevenues
Source:USAToday
111
DiscussionofAthle@cRevenues
Directins@tu@onalsupportaregenerallypaymentsfromthecore
University(thoughmostadministra@onsdenythis).Thispaymentdid
decline,butwass@llalmost$3millionin2010
$3.29millionisalotofOTHER
BoththeEADAandUSATodayreporttotalrevenuesmiraculously
equalingtotalexpenseseachyear.Therearesomenon-cashitems
involved,andthismakesinterpreta@onoftotalrevenuesdicult.
Totalexpensesinbothyearsmatchedwithbothdatasources;USA
Todayincludesindirectins@tu@onalsupport,whichEADAexcludes,
asdoI.Thisislikelythealloca@onofthepresidents@meandother
allocatedcosts.
EADAreportsfootballrevenuesof$32millionfor2010;however,
@cketrevenuesforallsportswasonly$21million.Thereareother
revenues,butitisnotclearhowthatmuchgetsallocatedtofootball.
112
TheBigTenConference
Source:EADA(EquityinAthle@csDataAnalysis)
113
BigTenFootballRevenues
Source:EADA(EquityinAthle@csDataAnalysis)
114
Averagew/oMinn.=$41.5M
Minnesota=$32.3M
Conclusions
TheUniversityofMinnesotaisinstrongnancialcondi@on.This
conclusionissupportedbyindependentthirdpar@es.Various
nancialra@osandcashowssupportthisconclusionaswell
Itisclearthattherehasbeenanincreaseinadministra@vecosts,
andadeclineinthepropor@onofinstruc@onalcostsover@me;
thisnancialevidenceissupportedbytheemploymentdata.The
peerdataonadministra@vecostsisnotaJeringtotheU
Letsdisposeofafewmyths:
TheStateappropria@onisnotthemajorityrevenuesource,assomemay
believe;fortheUitis21%
Facultysalariesarenot75%oftotalcosts;lessthan20%inreality
Itisnotfacultysalariesthatiscausingtui@ontoincreaseadministra@ve
costsarethemainculprit
Facultyaregenerallylowerpaidthanfacultyatpeerins@tu@ons
Classsizesareincreasingatsomeleveloverthelastseveralyears
Athle@cspendingisnothighwhencomparedtototalexpenses,
butithasbeenincreasingsignicantlyoverthelastseveralyears
115
Aspira@ons
Changetheconversa2oninsteadofgh2ngoverwhich
academicprogramstocut,talkaboutreserves.Then,
ensurethatadministra2oncutsarediscussedupfront.The
increaseinthenumberandcostofadministra2onis
alarming,anditmustbeaddressedrst.Thenew
Presidentstated:Whentheprovostarrives,heorshewill
leadtheconversa+onaroundtofocusonacademic
programsmndaily.com9/26/11
Asfaculty,weshouldbeskep2calandpersistentin
demandingthatthemostresourcesnecessaryarebeing
commigedtothekeyacademicandresearchmissionsof
UM
Theresponsethatweshouldbeluckytohaveourjobs
needstoberejected;publichighereduca2onisapublic
good,andweneedtostandupfortheroleofhigher
educa2oninoursociety
116