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Financial Presentation to Senate (s)APRIL 17, 2014

Introduction

Annual financial report

Additional information requested this year

Prepared and distributed a comprehensive package

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Agenda

Status of the 2014‐15 budget

Aspects of UNB finances

Questions raised from March 25, 2014 Senate meeting

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Update on 2014‐15 Operating Budget Submission as of April 14, 2014

Operating budgets on both campuses will be balanced.

Tuition fee increase of 3%.

Less conservative budget estimates.

$6 million of risk reserves will be released.

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3 Key Aspects of UNB Finances

Systemic operational funding challenge

Cost reductions cannot continue indefinitely

UNB has run operating surpluses in each of the last 3 years• Why• What happened to the $

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65.9%

15.0%

7.0%

5.0%4.1%

3.0%

OperatingResearchTrustAncillaryCapitalEndowment

6Source: UNB CAUBO Submission, 2012‐13

UNB Annually Receives Funding of over $300 million.The Use of a Large Portion of These Funds is Externally 

Restricted by the Provider of the Funds

Funds for Campus Operations

59.3%

32.6%

8.2%

Unrestricted Provincial Operating Grant Tuition Fees Other

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Under Pressure

Under Pressure

Source:  UNB Operational Budget Financial Results 2012‐13

• UNB Operational Funding Comes from 3 Main Sources• The Largest 2 Sources are Under Significant Pressure

Unrestricted Provincial Operating Grant

Last 2 years (12/13 and 13/14) base grant frozen• One‐time funding

Next 2 years + 2% per year increase

Province is borrowing to fund its budget

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Pressure Point – Economic and Fiscal Conditions

Tuition Fee RevenuePressure Points

Declining Enrolment +

Tuition Fee Constraints

9,961

10,494

11,054 11,11711,048

10,496

10,090

9,599

9,428 9,449

9,677

9,493 9,319

7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

2001/FA 2002/FA 2003/FA 2004/FA 2005/FA 2006/FA 2007/FA 2008/FA 2009/FA 2010/FA 2011/FA 2012/FA 2013/FA

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UNB would have ≈ $15 million more annual tuition revenue if total enrolment were now at 11,117

GAP

FTE

AMENDED*

*Note: Double Cohort in Ontario started in Fall 2003

Operating Funding Model at Steady Stateto Increase by about 2% a Year

8.2%

32.6%

59.3%

Other Sources

Tuition Fees

Provincial Operating Grant

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2%

3.0%(1.5)%1.5%

3.0%

1.91%

Increase

FeesEnrolment

Weighted Average

A Comprehensive University Cannot Operate and Thrive on +2% a Year

2%

4%

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

UNB Operating Funding Outlook UNB Strategic Plan Target OperationalRevenue Growth

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UNB has been addressing operating funding challenges, mainly by cost reductions

$25 million of cost reductions, over 8 years (attrition, budget cuts, budget freezes, etc.)

Cost reductions cannot continue without harming the existing UNB model.

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University of New BrunswickCost Reductions have Played a Major Part in Actual Operational 

Expenses being Less than Revenues (Surplus)  in each of the Last 3 Years

$159.5 

$161.5 

$170.8 $178.0 

$182.2 

$159.5 $164.5 

$163.1 $168.1 

$170.6 

$100.0

$110.0

$120.0

$130.0

$140.0

$150.0

$160.0

$170.0

$180.0

$190.0

2008‐09 2009‐10 2010‐11 2011‐12 2012‐13

Actual Revenue Actual Expenses

Source: Annual Report of University Comptroller, 2008, 2009, 2010Summary of Operating Budget Financial Results, 2011‐12, 2012‐13

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$ millions

UNB aims for a balanced budget yet has had surpluses in each of the last 3 years indicating:

• Achieving efficiencies and additional revenues

• Campus budget estimates have been too conservative

• In‐year campus cost management has been very tight

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An independent review has been conducted on campus budget procedures• Improvements have been made

A review of campus budget estimates began last July• 2013‐14 budget was restated• 2014‐15 assumptions have been reset.

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What Happened to the Surpluses

• 2 parts to this:

1) What happened to the money that was left over at the end of each year – one‐time funds -

2) What impact does the surplus have on future budgets – ongoing impact -

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Surpluses in Each of the Last 3 YearsTotaled up to $29.4 million

One‐time Funds

$ millions

‐ Capital and deferred maintenance $9.1

‐ Eliminate accumulated deficit 6.0

‐ Establish funding decline reserve 6.0

‐ Future student recruitment 2.0

‐ Reduction in debt 1.7

‐ Unrestricted surplus 1.4

‐ Fundraising campaign 0.8

‐ Other priorities 2.4

$29.4

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Funds were Designated For:

Application of $29.4 million was Recommended by UMC and Approved by the Board

The funds were placed into special internally restricted accounts, for accountability, until used.

About 1/3 have been utilized and 2/3 remains.

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Ongoing Impact of Surplus will be Fully Absorbed Next Year

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$4.9Reflected in 2013‐14 budget onward

$3.1 Reflected in 2014‐15 budget onward

$1.7 Limited‐term funds available in 2014‐15

$2.0One‐time Savings in 2012‐13

$11.7 million

Clarify 3 Key Questions from March 2014 Senate

What were the levels of actual operational surpluses over the last 3 years.

What is the nature and purpose of internally restricted net assets.

Does UNB have structural deficits.

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The subtotal line “Excess of Revenues over Expenses before

Changes in Net Assets”

≠SURPLUS

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UNBActual Operating Results

2008‐09 to 2012‐13$(millions)

$16.2 $19.2$21.1

$27.9

($3.0)

$7.8 $9.9$11.7

($10.00)

($5.00)

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

2009‐10 2010‐11 2011‐12 2012‐13

Subtotal Line from Audited Consolidated Financial Statements entitled Excess of Revenues over Expenses before Changesin Net AssetsActual Operating Results

X

X

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Not a Surplus

Is a Surplus(Deficit)

Main Differences between Subtotals and Final Actual Surplus

$ spent on capital items (computers, equipment, major repairs).  Funds have been spent, cannot spend again.

Funds that have been saved or earned by departments –carryforwards.

Overheads and contract residuals that belong to researchers and departments – carryforwards.

Planned capital savings programs.

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What is the Nature and Purpose ofInternally Restricted Net Assets at a University (IRNA)

Universities have programs, activities and projects that are undertaken over multi‐years and are highly decentralized.

This requires tools such as IRNA that support multi‐year savings and planning.

IRNA also provides a mechanism to incent budget units to source and save their own funds rather than rely totally on central funds

Mechanism to uphold obligations and manage risks

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Why have IRNA’s been Growing over the Past Few Years at UNB

Operating budget surpluses of $29.4 million over the past 3 years.  

About 1/3 of this has been spent and 2/3 will be spent on designated purposes in the near future.

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UNBProfile of 

Internally Restricted Net Assets

Dollar values

• Centrally controlled $48.2 million 47.5%• De‐centrally controlled $53.3 million 52.5%

Number of individual accounts

• Centrally controlled 81 3.7%• De‐centrally controlled 2,100 96.3%

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Internally Restricted Net Assets2013

$(millions)

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FrederictonCategory and UW Saint John Total

Capital $12.8 $12.5 $25.3Entrepreneurial $15.8 $8.6 $24.4Risk $16.5 $1.6 $18.1Operating Budget Carry Forwards $9.4 $1.2 $10.6Strategic Priorities $6.0 $2.6 $8.6Specific Projects $5.0 $3.0 $8.0Contract Overhead $3.7 $0.3 $4.0Scholarships, bursaries and awar $2.5 $0.1 $2.6

$71.7 $29.9 $101.6

Internally Restricted Net Assets as at April 30, 2013

Entrepreneurial2013$(000’s)

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Main Components UNBF & UW UNBSJ Total

Research contract residuals and labs $5,568 ‐ $5,568Nursing 3,282          1,389          4,671       College of Extended Learning 1,074          ‐ 1,074       Trinidad and Tobago 995             ‐ 995          Andrews Initiative 639             ‐ 639          Royalties and Licenses (ORS) 624             ‐ 624          Research risk contingency 275             ‐ 275          MBA Program ‐ 4,540          4,540       Saint John College ‐ 1,988          1,988       

Total Listed $12,457 $7,917 $20,374% of Total $ 83% of Grand Total

Risk2013$(000’s)

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Main Components UNBF & UW UNBSJ Total

Revenue risk reserve 4,195            950 5,145     Pension Rate Stabilization and Transition 3,798            ‐ 3,798     Endowment backstop 3,403            382 3,785     Fringe benefit reserves 2,113            ‐ 2,113     Unspent contingencies 1,187            ‐ 1,187     Uninsured loss reserve 543               ‐ 543        Self insurance  ‐ computers and equipmen 143               ‐ 143        

Total Listed 15,382          1,332 16,714  % of Total $ 93% of Grand Total

Special Projects2013$(000’s)

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Main Components UNBF & UW UNBSJ Total

Library acquisitions $1,649 ‐ $1,649Approved projects - VP Fredericton 1,126            ‐ 1,126Admin fee shortfall - fund raising 607               ‐ 607Admin searches 310               149 459Admin Leaves 285               150 435Vehicles (Facilities) 109               ‐ 109Recruitment and Retention ‐ 924 924Urban Institute ‐ 323 323Fringe Benefit Reserves ‐ 542 542Sabbatical Replacment funding ‐ 166 166Priority commitments ‐ 717 717

Total Listed $4,086 $2,971 $7,057% of Total $ 87.4% of Grand Total

Strategic Priorities2013$(000’s)

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Main Components UNBF & UW UNBSJ Total

Fredericton campus initiatives and priorities $3,118 ‐ $3,118U‐Wide Strategic Plan Implementation 1,950           ‐ 1,950      HST Rebates  ‐ for University priorities 570              ‐ 570         UNBSJ Priority funding ‐ 1,082 1,082      Retention and Recruitment ‐ 1,000 1,000      

Total Listed $5,638 $2,082 $7,720% of Total $ 89.5% of Grand Total

Does UNB have a Structural Deficit (shortfall)

Operational

Deferred Maintenance

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Structural Operating Deficit ‐ Defined

You start off each year with a challenge

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OngoingFunds

Available

Ongoing Costs

GAPEach Year

The GAP Continues in 2015‐16(at steady state)

2%

3%‐4%

0%

1%

2%

3%

4%

5%

Operating Revenue Growth Operating Expense Requirements(Depending on CPI)

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The impact of 2012‐13 surplus will have been fully worked through by 2014‐15

Starting again in 2015‐16, the Gap is expected to continue.

GAP

Deferred Maintenance – Structural Deficit

UNB spends less than 1% of facilities replacement value a year on infrastructure renewal.

Industry standards recommend 2‐3% annually.

Many buildings and components (especially on UNBF with an average age of 53) are passing their useful life span.

Accordingly, spending requirements are rising.

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What is the Level of Deferred Maintenance at UNB?

How Does this Compare to Other Universities?

$200 + million backlog at UNB UNB’s position worse than many others

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GOOD FAIR POOR

0 5 10+CanadianUniversityAverage 14

2010

UNB20+

• University accounting is very complicated and we are going to work harder at demystifying it so we can achieve the open and transparent communication of this information for which we are striving.

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Conclusion

QUESTIONS/COMMENTS

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Sample of Actual Operating Expense Growth by Province

Nfld. PEI NS NB Ontario Manitoba

2011‐12 8.0% 6.8% 2.1% 2.6% 8.0% 5.6%

2010‐11 7.4% 2.6% 5.6% 3.5% 4.3% 4.4%

2009‐10 8.6% 7.4% 4.7% 1.3% 2.6% 4.6%

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Source:   CAUBO Reports

UNBActual Growth in Operating Revenue

%

1.9%1.2%

0.86%1.2%

5.8%

4.1%

2.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2007 2008 2009 2010 2011 2012 2013

UNBAnnual Actual Growth in Operating Revenue

Lags UNB Strategic Plan Target of 4%

Average 2.48%

Source: Annual Report of University Comptroller, 2008, 2009, 2010Summary of Operating Budget Financial Results, 2011‐12, 2012‐13

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UNB 3 Main Types of Financial Reports

• External Audited Consolidated Financial Statements– Reflects all financial activity of UNB– Prepared in accordance with GAAP for non‐profits– Stewardship‐based reports

• UNB’s Analysis of Publicly available Annual CAUBO Financial Reports– CAUBO reports are compiled for Statistics Canada– Sources and application of funds broken down by fund type (restricted or not) 

and function.– Allows apples‐to‐apples comparison of Canadian university resources and 

utilization.  UNB prepares and makes public annual comparison analysis.

• UNB Operational and Capital Budgets– Focused on UNB operations and capital activities– Cash‐based reports– Format reflects management’s needs.

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Overview of UNBBudget Oversight

Board of Governors

Finance Committee

President

University ManagementCommittee

University-wide

Budget ManagementCommittee

Chair President

Saint John Campus

Budget ProcessChair Campus VP

Fredericton Campus

Budget ProcessChair Campus VP