DRAFT

REPORT OF THE FINANCIAL AFFAIRS COMMITTEE June 25, 2020

The Financial Affairs Committee met (via teleconference) at 2:30 p.m. on June 25, 2020. Participating on the call were Committee members Todd Black (Chair), Kass Ardinger, Christopher Pope, George Hansel, Mike Pilot, Morgan Rutman, Alex Walker and Wally Stevens; Trustees Joseph Morone, Amy Begg, Jamie Burnett, Jacqueline Eastwood, Shawn Jasper, David Westover, Cathy Green, Marjorie Smith, Scott Mason, Caliee Griffin, President Donald Birx, President James Dean, President Mark Rubinstein, President Melinda Treadwell and Chancellor Todd Leach. USSB: Victoria Bergstrom and Tyler Minnich Staff: Susan LaPanne, Tracy Claybaugh, Lisa Shawney, Jay Calhoun, Wayne Jones, Scott Stanley, Marlin Collingwood, James McGrail, Catherine Provencher, Karen Benincasa, Ronald Rodgers, Tia Miller, Ann McClellan, Robin Derosa, Lisa Thorne, Ockle Johnson, MaryBeth Lufkin, Rosemare Carrie, Scott Stanley, and Lorna Jacobsen. The following statement was made, and attendance taken by Lorna Jacobsen: This meeting is being held by electronic means in conformance with the Governor’s emergency declaration of March 13, 2020, and subsequent emergency orders, as well as the applicable provisions of the New Hampshire Right-to-Know Law, RSA 91-A. If during the conduct of this meeting, anyone has difficulty connecting or staying connected to the video or audio feed please contact Tia Miller at Tia.miller@usnh.edu or 603-862-0918. Call to Order: At 2:30 pm, Chair Black called the meeting to order and noted the presence of a quorum sufficient for the conduct of business. He noted the need for a non-public session during the discussion of the FY21 budget. He reviewed items on the consent agenda asking if any of them needed discussion. Vice Chancellor Provencher noted that the FY21 capital budget, one of the items on the consent agenda, had been reviewed by the Investment Committee in April. I. Approval of Consent Agenda (Moved by Trustee Black and duly seconded)

VOTED, that the consent agenda for the Financial Affairs Committee meeting on June 25, 2020 be approved. (The Committee voted unanimously in favor of this motion}

Items on the Consent Agenda:

mailto:Tia.miller@usnh.edumailto:Tia.miller@usnh.edu

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A. Approve minutes of April 23, 2020 meeting

B. Approve FY21 Budget for Keene Endowment Association

C. Approve FY21 Budget for UNH Foundation D. Approve FY21 Capital Budget

Vice Chancellor Provencher made note that Investment (and Capital Projects) Committee approved FY 21 capital spending at its April 2020 meeting but there remains significant uncertainties related to FY 21 spending. Accordingly, capital spending for FY 21 will be revisited.

End of Consent Agenda

II. Actual and Project Financial Results and Budgeting

A. Admissions Update

Campus presidents gave updates and commented on admissions and paid deposits for incoming freshman and transfer students for Fall Semester 2020. Discount rates for incoming students were reported with UNH increasing by about 8% over prior year, PSU slightly above and KSC slightly below prior year. Presidents and other trustees expressed concern that the increase in discount rates at one institution can create competition within USNH for the same students. There was discussion on the overlap of applicants between UNH, PSU and KSC. Chancellor Leach said the Clearinghouse data on applicants will be evaluated as it has been in the past three years. As was discussed at Educational Excellence Committee in the morning, Chancellor Leach acknowledged they are data challenges because USNH has disparate systems and definitions. The Administrative Board was charged with bringing back a more complete analysis of applicants and overlap within USNH to inform a more coordinated admissions process with consistency in discount rates.

B. Update on Federal Relief programs

Item not discussed.

C. Approve FY21 Operating Budget VOTED, on recommendation of the Chancellor and Presidents, that the

following motion be presented for consideration of the Board of Trustees. MOVED, on recommendation of the Financial Affairs Committee, that the

operating budget for the University System applicable to the fiscal year beginning July 1, 2020 and ending June 30, 2021 (FY21) be approved in total by the Board of Trustees as presented in the attachments; AND FURTHER that budget adjustments between campuses/units are authorized within the total

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System-wide Expenses approved; AND FURTHER that any required changes and modifications to the operating budget, including revisions to the estimated COVID-19 and one-time costs, required during FY21 are delegated to the Executive Committee of the Board.

{The Committee voted unanimously in favor of this motion}

Chairman Black gave an overview of the FY21 budget calling attention to significant components on the expense side including one-time COVID costs of $38 million and a COVID enhanced retirement and separation plan for employees. Several questions were posed about items included or not included in the budget. He said the projected loss in FY21 is $85 million including all the currently estimated onetime costs. Vice Chancellor Provencher said the budget is like no other before and contains a material amount of uncertainty. She said the budget does not include an amount for room and board refunds if the semester is interrupted. It also does not include any reimbursement USNH may get from FEMA or any additional CARES dollars. She said the expense of the separation plan needs to be accounted for in the year it is offered and accepted. Because of the accounting requirement, the cash impact of the separation plan differs greatly from the income statement or operating margin impact. USNH is estimating $33 million for this expense in FY21, providing a tool for future years of salary savings for campus restructuring. There was a discussion about the students potentially ending the first semester at home after Thanksgiving rather than returning to the campus. The Committee discussed the need for disclosures about refund policies in advance of accepting payments for the semester Concerns about the public health risk of traveling and returning to campus were noted. Chairman Black said unlike prior years when campuses had a set of assumptions and parameters approved by the Board to guide budget development, for FY21 campuses have used updated revenue estimates based on most current information and the focus has been on expenses and holding spending and employee compensation flat with FY19. Trustee Rutman reported that the Investment Committee has asked Prime Buchholz to build cash reserves in the endowment as a contingency. It was pointed out that while conversations have focused on finances and modeling, the decision to bring students back to campus is not a financial decision and will be made with public health and safety as the chief concern. Concern was expressed that the budget reflects a best-case scenario and several trustees said they would like to see other scenarios. It was asked that other budget scenarios be developed to include: 1) what if we do not come back to campus in fall 2) what if we need to ask students to leave earlier than thanksgiving 3) what if we cannot come back to campus at all for the academic year 20-21, Trustee Morone stated that if students do not come back to campus said that if students are sent

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home, the cost for one half a semester is approximately $50 million minus some level of variable expenses. At 4:35 p.m. the following motion to enter nonpublic session was made by Trustee Black and seconded by Trustee Rutman. The motion was approved by roll call vote. In addition to trustees, system and campus administrators attended the non-public session.

VOTED, that the Financial Affairs Committee go into nonpublic session for the purposes of discussing employee salaries for FY2021 and employee benefits programs, as authorized under the NH Right to Know Law pursuant to the provisions regarding (1) employee compensation, and (2) matters likely to affect collective bargaining strategy, as authorized by RSA 91-A:2, I (a); and 91-A:3, II (a).

Return to Public Session

Upon a motion to exit nonpublic session, made by Chairman Black, duly seconded, and approved, Chairman Black reconvened the public meeting at 5:00 p.m. and announced that the no actions were taken while in nonpublic session. Trustee Morone said that the FY21 budget is different from prior budgets because of the unknowns. He said it authorizes COVID expenses estimated to be $38 million, rolls expenses back to FY19 and includes savings as a result of benefit changes currently under consideration. Vice Chancellor Provencher said the motion delegates to the Executive Committee of the Board the authority to approve budget revisions as COVID-19 impacts and fall enrollment are known. Chairman Black thanked Mr. McGrail for his work on developing benefit savings and Vice Chancellor Provencher, her team and campuses for their hard work on the budget. He said that next year’s work plan for the Committee will include regular reports on the savings that are realized through restructuring, benefit changes and separation plans. He asked Vice Chancellor Provencher to develop metrics to track savings.

D, Update on FY22-23 Planning Trustee Black said that planning has been ongoing for FY22-23 and said that cost savings that need to be achieved are $16 million in FY21, an additional $37 million in FY22 and an additional $16 million in FY23. He expressed appreciation to Trustees Morone and Pilot on their work with the campuses and system staff on restructuring

E. Biennial Budget Guidelines and delegation to Executive Committee

VOTED, on recommendation of the Chancellor, that the Financial Affairs Committee delegate authority to the Executive Committee to approve guidelines for the FY22-23 Biennial State Operating Budget Request AND FURTHER to direct the Chancellor to prepare the detailed request consistent with those guidelines, and with input from the Administrative Board, for approval by the

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Board of Trustees or Executive Committee on behalf of the Board of Trustees prior to submission to the Governor {The Committee voted unanimously in favor of this motion}

Trustee Black said the State requires the University System of New Hampshire to submit its FY22-23 request for State biennial operating support in September. Guidelines for preparation of the biennial budget are traditionally discussed and approved by the Board in the spring but this spring responding to the COVID-19 pandemic has consumed the time and focus of trustees and management. Coupled with great uncertainty surrounding both the USNH and State budgets, development and approval of the guidelines has been delayed. Since the Board of Trustees is not scheduled to meet before October, the Executive Committee can act on their behalf. The Executive Committee has been meeting weekly for the last several months and will continue to do so over the summer to provide guidance to the Chancellor and Administrative Board on budget development.

F. Other Business

A. Comments by Chair

Trustee Black brought forward KSC’s request to replace the surface on an existing turf field, an item discussed earlier by the Investment Committee and deferred. He summarized the discussion of the Committee noting that the issue is time sensitive if KSC plans to use the field for fall sports. He said discussion centered on spending the $1.1 million at this point when there is so much uncertainty with the budget and the coming academic year and in light of the efforts across the system to preserve cash. He said the Committee recognized that safety is a priority, but the risk of the surface is hard to evaluate without an independent safety assessment. He said there was recognition that Athletics is important to KSC’s brand and several trustees thought that the decision should be the President’s given that under non-pandemic circumstances, this project would have been within her authority. get more input from trustees and that a safety assessment, and clarity on the fall sports season is necessary before moving forward with the project.

B. Next regularly scheduled meeting date of the FAC is June 25, 2020

C. The Committee adjourned at 5:10 p.m.

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UNIVERSITY SYSTEM OF NEW HAMPSHIRE BOARD OF TRUSTEES

Financial Affairs Committee

Motion Sheet

University of New Hampshire To: Financial Affairs Committee Re: Suspend Enrollment Limitation of Out-of-State Undergraduates at UNH

PROPOSED MOTION

SUMMARY OF PROPOSED ACTION

The motion recommends to the Board of Trustees suspension of the 25% limit for FY22 on the number of undergraduate students enrolled at UNH from out-of-state.

RATIONALE FOR PROPOSED ACTION

State law RSA 187-A:10 authorizes the Board of Trustees to suspend the limitation that out-of-state student enrollment at UNH in any given year shall not exceed 25 percent of the maximum capacity for undergraduate students at the university. The law provides that the Board may suspend the limitation "whenever the Trustees find that such suspension benefits the state and the university without impairing the opportunity for qualified students of the State of New Hampshire to attend the university." PREVIOUS REVIEWS AND APPROVALS

None

RELEVANT GOVERNANCE DOCUMENTS, POLICIES, AND PRACTICES

A copy of the text of the State law RSA 187-A:10 is attached. It has been the practice of the Board of Trustees for many years to suspend the limitation.

RESOURCE IMPLICATIONS

Out-of-state enrollment above 25% is crucial to UNH’s ability to function as a university as dependence on nonresident tuition and auxiliary revenue is significant. Nonresident enrollment at UNH for the Fall of 2020 is approximately 50%.

RISK MANAGEMENT CONSIDERATIONS

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President Dean’s letter describes impact to the programs and academic offerings if out-of-state enrollment was capped. The letter also describes economic considerations for the region and for the families of New Hampshire resident students.

SUBSEQUENT ACTION REQUIRED

Approval by the Board of Trustees is scheduled for consideration on October 23, 2020.

ATTACHED MATERIALS

- 10/6/2020 Letter from President Dean to the Vice Chancellor for Financial Affairs and Treasurer

- Copy of State law RSA 187-A:10 Out-of-State Students

SUBMITTED BY: APPROVED BY:

Catherine A. Provencher Todd Leach Vice Chancellor for Financial Affairs Chancellor and Treasurer

Date Prepared: October 9, 2020 For the Meeting of: October 22, 2020

-- End of Motion Sheet --

Office of the President

105 Main Street Durham, NH 03824

V: 603.862.2450 F: 603.862.3060 TTY: 7.1.1 (Relay NH)

Presidents.office@unh.edu

TO: Catherine Provencher, Vice Chancellor for Financial Affairs and Treasurer

FROM: James W. Dean Jr.,

President DATE: October 6, 2020 RE: 25% Limitation on Out-of-State Undergraduates at UNH In accordance with policy, I formally request that the USNH Board of Trustees approve for fiscal year 2022 suspension of the 25% limit imposed by State Law RSA 187-A:10 on the number of out-of-state undergraduate students enrolled at the University of New Hampshire. This request has been made annually to the Board of Trustees for years. The reasons for recommending this action have consistently been financial, academic, and social. UNH is a tuition-dependent institution, and we rely on the revenue generated from tuition income to support the University’s academic program. If our current out-of-state undergraduate enrollment were reduced to the 25% cap, considerable tuition income would be lost for education and general expense. Non-resident students also have a direct economic impact on local business and the seacoast area. Their travel to and from New Hampshire, parent visitations, and the fact that their tuition helps subsidize in-state students all contribute to their total economic impact. UNH could not have the range of programs and academic offerings for all students if it were not for the non-resident enrollment. Many of our degree programs are dependent on non-resident enrollment for success in their ability to continue. Non-resident students are necessary for a university of this magnitude and scope. Maintaining such programs for the benefit of New Hampshire students directly relates to our continuing ability to attract highly qualified out-of-state students for admission to UNH, supports maintaining a high academic standard, and contributes to the overall quality of academic life on campus. Non-resident students also bring cultural enrichment to UNH in many forms. These students tend to comprise the vast majority of our urban students and those from other cultures and customs. They help New Hampshire students experience the diversity they will encounter in the years ahead. In addition, out-of-state students are also an abundant source of talent for professional programs, student leadership positions, and athletics.

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The estimated unofficial undergraduate enrollment totals as of September 30th at UNH Durham and Manchester are as follows: resident 50% and non-resident 50%.

It is important to suspend the 25% limit on out-of-state enrollment for all the aforementioned reasons. In so doing, I would like to stress that such action will not adversely affect the opportunity for qualified New Hampshire students to attend their state university. c Wayne Jones Jay Calhoun Pelema Ellis Lorna Jacobsen Todd Leach

TITLE XVEDUCATIONCHAPTER 187-A

STATE COLLEGE AND UNIVERSITY SYSTEM

University of New Hampshire

Section 187-A:10

187-A:10 Out-of-State Students. – The number of undergraduate students enrolled in the university of New Hampshire from domiciles outside the state in any year shall not exceed 25 percent of the maximum capacity for regular undergraduate students at the university as determined by the board of trustees. The limitation on out-of-state enrollment at the university may be suspended by vote of the board of trustees whenever the trustees find that such suspension benefits the state and the university without impairing the opportunity for qualified students of the state of New Hampshire to attend the university. However, any such suspension shall be made for not more than one year at a time but may be continued from year to year upon vote of said trustees. The limitation on out-of-state enrollment at the university of New Hampshire shall not apply to the following divisions of the university: Thompson school of applied science, summer school and graduate school. Nor shall the limitation apply to students attending the university under reciprocal agreements and contracts with other educational institutions.

Source. 1981, 331:1, eff. Aug. 16, 1981.

Page 1 of 1Section 187-A:10 Out-of-State Students.

9/29/2017http://www.gencourt.state.nh.us/rsa/html/XV/187-A/187-A-10.htm

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University System of New HampshireDebt Report

PFM Financial Advisors 100 High Street, Suite 2300Boston, MA 02110

617-330-6914pfm.com

October 2020

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Contents I . C U R R E N T D E B T O V E R V I E WI I . C R E D I T A N A LY S I S

I I I . C O N C L U S I O N S & R E C O M M E N D A T I O N S

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I. Current Debt Overview

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Debt Overview

The University System of New Hampshire currently has 9 series of bonds outstanding

All bonds have been issued through the New Hampshire Health and Education Facilities Authority

The System currently has $381.705 million in bonds outstanding

• $258.77 million in fixed rate debt (67.8%)

• $122.935 million in synthetic fixed rate debt (32.2%)

• Overall weighted average cost of capital: 3.56%

Series Par Outstanding1 Current Structure Effective All-in Rate Final Maturity Next Call DateSeries 2005 A 42,300,000 Synthetic Fixed 4.10% 2035 N/A2

Series 2005 B 54,695,000 Synthetic Fixed 3.54% 2033 N/A2

Series 2011 A 6,000,000 Fixed 3.53% 2021 Non-Callable

Series 2011 B 25,940,000 Synthetic Fixed 5.00% 2033 N/A2

Series 2014 Direct Purchase 9,240,000 Fixed 1.97% 2024 Make Whole

Series 2015 104,685,000 Fixed 3.79% 2045 7/1/2025

Series 2016 44,670,000 Fixed 2.66% 2046 7/1/2026

Series 2017 A 50,195,000 Fixed 3.13% 2037 7/1/2027

Series 2017 B (Taxable) 43,980,000 Fixed 3.42% 2037 7/1/2027

Total Bonds Outstanding $ 381,705,000 1. As of 9/30/20202. High termination value makes the synthetically fixed bonds economically non-callable. Synthetic fixed rate debt is variable rate debt that has a fixed payor swap agreement. Under the terms of the swap agreement, the System pays a fixed rate and receives a variable rate.

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Debt Overview (cont.) The University System of New Hampshire currently has 3 swaps outstanding

The System’s outstanding swaps are all fixed payor with rates ranging from 3.1199% to 4.490%

Current One-Year LIBOR rate of 0.39% results in receiver rates of 0.26% for the Series 2005 A and 2011 B bonds and 0.54% for the Series 2005 B bonds

The total notional amount of the swaps as of August 31, 2020 is approximately $122.935 million

The mark to market value of the swaps as of September 30, 2019 is ($27.6 million)

• The System would have to pay the mark to market value to terminate the swaps

The University System of New Hampshire’s underlying variable rate debt is supported by various liquidity providers as summarized below

Series Notional Amount¹ Fixed Rate Paid Variable Rate Received Mark to Market Value¹ Termination Date Counter Party Counter Party Rating

2005 A 42,300,000 3.5910% 67% LIBOR (11,494,198) 7/1/2035 BNY Mellon Aa2/AA-/AA

2005 B 54,695,000 3.1199% 63% LIBOR + 0.29% (8,960,491) 7/1/2033 Goldman Sachs A1/A+/A+

2011 B 25,940,000 4.4900% 67% LIBOR (7,099,166) 7/1/2033 Morgan Stanley A3/BBB+/A

Total $ 122,935,000 $ (27,553,854)¹ As of 8/31/20

Series Liquidity Provider Liquidity Type Liquidity Fee Expiration Date Remarketing Agent Liquidity Provider Rating

2005 A State Street Corporation SBPA 0.42% 4/28/20211 Barclays (A-1) / JP Morgan (A-2) Aa3/AA-/AA2005 B Wells Fargo SBPA 0.35% 3/22/2022 Barclays (B-1) / JP Morgan (B-2) Aa2/A+/AA-2011 B State Street Corporation SBPA 0.42% 4/28/20211 Barclays Capital Aa3/AA-/AA1. The System will begin working on a renewal or replacement of the State Street SBPA's in November

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Fiscal Year Debt Service The graph below summarizes the System’s current annual debt service obligations on a fiscal year basis

Maximum Annual Debt Service is currently in 2022 at $42.9 Million

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5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

Fiscal Year End 6/30

Series 2017B

Series 2017A

Series 2016

Series 2015

Series 2014

Series 2012

Series 2011B

Series 2011A

Series 2005B

Series 2005A

Please note the $6 million Series 2011A bullet maturity due in 2022

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Reminder: Historical Fiscal Year Debt Service Requirements in 2015 -before restructurings completed between 2015-2017

The University has a made a significant effort to pay down and restructure its debt

The Series 2007 and Series 2009A bonds were restructured for level debt service at lower rates

Maximum Annual Debt Service at the time was $74.4 Million in FY2019

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10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

Fiscal Year End 6/30

Series 2014

Series 2012

Series 2011B

Series 2011A

Series 2009A

Series 2007

Series 2006B-2

Series 2005B

Series 2005A

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II. Credit Analysis

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Moody’s Higher Education Sector Outlook Shifted to Negative In March 2020, Moody’s revised its outlook on the higher education sector from stable to negative reflecting both the immediate negative

financial impact of the coronavirus outbreak as well as other significant downside risks. Moody’s rationale specifically notes:

• Ability to respond to rapidly increasing downside risks varies widely across the sector

• Coronavirus response will immediately hit revenues and drive expenses higher

• Universities face multiple risks to revenue in 2021 including disruptions in enrollment patterns, state support, endowment income

and philanthropy, and research grants and contracts

• Financial market disruption presents several immediate and longer-term challenges

• Investment losses will most immediately hit reserves and sustained losses will increase unfunded pension liabilities

S&P Higher Education Sector Outlook Remains Negative In January 2020, S&P maintained its negative outlook on the higher education sector, noting the rationale below, among other items:

• Even though top-tier institutions continue to thrive, favorable investment markets have strengthened endowment spending, and state

funding is growing, many regional colleges and universities face persistent challenges meeting enrollment and revenue targets

• Key risks include:

• Shrinking pool of high school graduates and international enrollment trends, and management and governance crises can cause

disruptions

• Decreasing net tuition revenues amid affordability concerns and costs and contributions continue to rise, stressing budgets

• Key Opportunities include:

• While state funding continues to improve, our economic growth forecast is below 2%

• Gift-giving, research environments, and schools continuing to pursue partners for efficiencies and enrollment, remain strong

• Low interest-rate environment provides broader financing opportunities

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Moody’s Median Report – Public Universities In July 2020, Moody’s reports that according to fiscal year 2019 median data, public universities’ operating performance remained sound but

median expense growth outpaced revenue growth for the third straight year, emphasizing the below rationale:• Overall revenue growth improved, though not equally across the sector

• Operating revenue growth was below 3% for 47% of public universities

• Larger universities had stronger revenue growth than smaller peers

• Revenue growth trailed expense growth for the third year in a row

• Median operating revenue grew at a stronger pace of 3.6% in FY19 than FY18 but trailed the 3.9% in median expense growth

• Median net tuition per student growth fell to 1.6% in FY19, the lowest level since FY2015

• Wealth and liquidity remained steady with median return on cash and investments was just under 4%

• Capital investment growth exceeded depreciation as debt remained manageable

• Median capital spending exceeded depreciation by 1.3x, highlighting efforts to keep pace with essential investment needs

• Debt to cash flow remained steady at a median 5.3x and debt service accounting for a median 4.5% of operating expenses

• Pension liabilities continued to substantially add to adjusted debt with median total adjusted debt to revenue of 1.25x

S&P Median Report – Public Universities In June 20191, S&P observes that the credit quality of public institutions was generally stable, although the disparity between higher- and lower-

rated entities continues to widen, noting the following:

• In higher-rated categories, financial operations remained steady or saw improvement due to continued favorable market conditions and

positive investment returns; conversely, schools in ‘BBB’ and speculative-grade categories continue to face enrollment difficulties,

resulting in more stressed financial operations

• Available resources were largely stable or improving across all rating categories

• Full-time equivalent median decreased by 1.0%, the first year of a median decline after four consecutive years of increases

1. As of the date of this presentation, S&P had not released their FY2019 median report

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Moody’s Credit Overview As of the Moody’s rating report dated February 25, 2019, the University System of New Hampshire has been assigned a Aa3

(Stable) rating from Moody’s on its long-term bonds

Strengths

Sole provider of four-year public higher education throughout New Hampshire, including flagship land-grant institution serving over 25,000 students

Strong wealth and liquidity relative to operations

Demonstrated expense flexibility with consistent operating performance and good debt service coverage

Manageable leverage, with fiscal 2018 debt to cash flow of 4.7x and no near term additional debt plans

Weaknesses

Lagging net tuition revenue growth due to weak regional demographics and stiff competition for students

Very low state funding, averaging 9% of operating revenue over fiscal 2014-18, and limited prospects for substantial improvement

Moderate research funding as a state flagship and land grant institution, with fierce competition for federal grant funding

Narrow pledged revenues, as only system facility revenues accounting for 19% of operating revenues, secure revenue bonds

What could make the rating go up?

− Strengthened growth in net tuition revenue leading to sustained improvements in cash flow

− Substantial growth of reserves

− Improved student demand trends

What could make the rating go down?

− Sustained deterioration of operating cash flow and debt service coverage

− Substantial erosion of liquidity

− Material increase in leverage

Source: Moody’s University System of New Hampshire ratings report, dated February 25, 2019

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S&P’s Credit Overview As of the S&P rating report dated May 14, 2020, the University System of New Hampshire has been assigned a AA- (Stable)

rating from S&P on its long term-bonds

Strengths

Status as the major provider of public higher education in New Hampshire

Adequate demand with full-time equivalent (FTE) enrollment averaging about 25,490 students over the past five fall enrollment periods, however, enrollment has declined slightly in each of the past four fall enrollment periods and was 24,428 in fall 2019

Respectable adjusted financial operating margin that averaged 1.7% over the past five fiscal years and was 2.5% in the most recent audited fiscal year ended June 30, 2019;

Experienced system management and adequate governance with disciplined fiscal management practices

Very healthy available resource ratios for the rating category

Weaknesses

Relatively flat to slightly declining annual net tuition revenue indicative of competitive pressure and tuition sensitivity thathas kept annual increases low

Historically very modest state support for higher education with an annual appropriation that has been less than 10% of adjusted operating revenue for each of the past five fiscal years

Limited support from fundraising, especially at UNH Durham compared with public flagships in most other states

What could make the rating go up?

− Sustained enrollment improvements

− Operating and liquidity margins improve significantly

What could make the rating go down?

− Enrollment declines materially

− State support declines

− Operating and liquidity margins deteriorate

Source: S&P’s University System of New Hampshire ratings report, dated May 14, 2020

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Moody’s Key Credit Ratios

Moody's Key Credit Ratios University System of New Hampshire 2Moody's Medians 1

Aa2 Aa3 A1

Fiscal Year 2017 2018 2019 FY2019

Total Debt ($, in millions) 479 458 437 1,115 434 147

Spendable Cash & Investments ($, in millions) 648 697 722 1,438 531 164

Total Cash & Investments ($, in millions) 918 961 1,003 2,024 738 221

Operating Revenue ($, in millions) 857 864 867 1,698 778 250

Operating Expenses ($, in millions) 830 849 844 1,745 773 253

Market Performance Ratios

Annual Change in Operating Revenue (%) -0.2 0.8 0.3 5.10 4.10 3.10

Operating Ratios

Operating Cash Flow Margin (%) 12.8 11.4 12.1 12.00 10.70 10.90

Revenue Diversity (Maximum Single Contribution) (%) 67.2 66.4 65.2 N/A N/A N/A

Wealth & Liqudity Raitos

Spendable Cash & Investments to Operating Expenses (x) 0.8 0.8 0.9 0.76 0.71 0.70

Monthly Days Cash on Hand (x) 223 228 239 154 151 170

Leverage Ratios

Spendable Cash & Investments to Total Debt (x) 1.40 1.50 1.70 1.41 1.35 1.24

Total Debt-to-Cash Flow (x) 4.4 4.7 4.1 4.88 4.75 5.87(1) Moody's Fiscal Year 2019 Public Higher Education Medians.(2) USNH's FY17-19 ratios were obtained from Moody's credit ratio database dated 9/17/2020.

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III. Conclusions and Recommendations

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Conclusions & Recommendations PFM continues to monitor and evaluate refunding opportunities for the University as the market

changes

• Tax law currently prohibits tax-exempt advance refundings but it is estimated that the Series 2015 bonds are producing savings on a taxable basis

• Due to current market volatility surrounding the pandemic and presidential elections, the System will wait and re-evaluate the opportunity later this year

The System has SBPA agreements expiring in April 2021 supporting the Series 2005A and Series 2011B bonds

• The System will need to either extend the SBPA’s with State Street Bank or issue an RFP process to replace them with a new provider

• The System will begin evaluating options in November

The Higher Education industry continues to face significant challenges and uncertainty surrounding the COVID-19 pandemic

• Moody’s revised their outlook from Stable to Negative in March of this year while S&P remains Negative on the industry

While earlier this year the municipal bond market was frozen for all but the highest rated credits, it has largely settled back to pre-pandemic levels

The upcoming presidential election may lead to some market volatility but the current market opinion is that this should decrease in the first couple weeks of November

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Disclosures

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For more information regarding PFM’s services or entities, please visit www.pfm.com.

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Thank You

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Preliminary Work Plan for Financial Affairs Committee FY21 10-22-2020

October 22, 2020 Zoom

1. Consent Agenda a. Approve minutes of the June 25, 2020 meeting b. Approve/recommend suspension of statutory limitation on out-of-state students at UNH c. FAC FY21 Workplan d. Debt Report

2. USNH Systemwide Risks assigned to FAC (report on monitoring/management) 3. Actual and projected financial results,

a. Presentation on FY20 financial statements b. Review updated enrollment and financial projections

4. Ongoing system-wide initiatives a. Strategic Procurement b. IT Service delivery Collaboration c. Status of CERP d. Financial Administrative Redesign

January 21, 2021

1. Approve Consent Agenda a. Approve October 22, 2020 minutes

2. Actual and projected financial results a. Campus FY1 (P1) projected financial results b. Approve/recommend FY22 housing, dining, and mandatory fees c. Approve/recommend FY22 resident and non-resident tuition d. Approve FY22 budget planning assumptions and parameters e. Approve FY22 proposal for endowment payout

3. Update on State operating and capital requests 4. Ongoing system-wide initiatives

a. Strategic Procurement b. IT Service delivery Collaboration c. Results of CERP d. Financial Administrative Redesign

April 15, 2021

1. Presentation of Brad Perry Award 2. Consent Agenda:

a. Approve January 21, 2021 minutes 3. Actual and projected financial results

a. FY21 budget results (P2) b. Admissions report

4. Update on State operating and capital requests

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5. Ongoing system-wide initiatives a. Strategic Procurement b. IT Service delivery Collaboration c. Financial Administrative Redesign

June 25, 2021, Granite State College

1. Consent agenda: a. Approve April 15, 2021 minutes b. Approve/recommend UNH Foundation FY22 Budget c. Approve/recommend Keene Endowment Association FY22 Budget

2. Actual and projected financial results, a. Review updated enrollment and financial projections b. Approve/recommend FY22 operating budget

3. Update on State operating and capital requests 4. Capital Items

a. Approve FY22 capital budget 5. Ongoing system-wide initiatives

a. Strategic Procurement b. IT Service delivery Collaboration c. Financial Administrative Redesign