B–1 BOARD OF REGENTS MEETING

B–1/204-19 4/10/19

Long-Term Planning Assumptions: Finance, Facilities, Budget and Enrollment INFORMATION This item is for information only BACKGROUND To prepare the Board for tomorrow’s retreat discussions, the Board will hear presentations from Brian McCartan, Vice President, Finance; Lou Cariello, Vice President, Facilites; Sarah Norris Hall, Vice Provost, Planning & Budgeting; and Phil Reid, Vice Provost, Academic and Student Affairs, on long-term planning assumptions in the areas of finance, facilities, budget, and enrollment. Attachments

1. April 2019 Financial Forecast and Fiscal Year 2020 Budget 2. Deferred Maintenance: Effectively Planning for Life-Cycle Costs 3. Access and Excellence: Enrollment and Budget

APRIL 2019 FINANCIAL FORECAST & FY20 BUDGET

BOARD OF REGENTS

APRIL 10, 2019

ATTACHMENT 1B-1.1/204-19 4/10/19

Page 1 of 10

FORECAST METHODOLOGY

> Covers entire UW, including UW Medicine (UWM)

> FY 2018 Actuals (audited), FY 2019 Estimates

> FY20-24 Forecast

– Based on inputs from across UW, Washington State Economic & Revenue Forecast Council, Congressional Budget Office (CBO) and UW Finance estimates

– UWM financial forecast from Dec 2017 (FIT Plan)

KEY ELEMENTS OF FORECAST

> Slowing economic growth through 2021; slow but steady growth thereafter. No recession included in forecast.

> Continued rising Washington population strong enrollment demand

> Slow student growth limited headcount growth

> Tuition growth consistent with current approach

> Slowing endowment (CEF) return

> UWM

– Assumes UWM stays on track with FIT plan goals through FY24

– Rising share of UW overall enterprise

> Slow growth of research funding declining share of UW enterprise

WHAT FORECAST IS NOT……

APRIL 2019 FINANCIAL FORECAST B-1.1/204-19 4/10/19

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APRIL 2019 FINANCIAL FORECAST> Operating deficits widened FY13-17 due to rising salary growth, slowing federal research and deteriorating UWM

financial position

> Deficit narrowed FY18 with heightened expenditure control & progress on UWM FIT Plan

> Deficit is forecast to widen after FY21 as rising compensation costs and deferred maintenance costs outpace growth in key revenue sources (tuition, research) and UWM FIT plan gains plateau.

> Changes in Net Assets remains positive due to gifts and endowment (CEF) returns.

Actual Forecast

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RECESSION SCENARIO

(600)

(400)

(200)

-

200

400

600

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24

April 2019 Recession Scenario Forecast$

M

Adjusted Net Income= Operating Revenue + State Approp. - Operating ExpensesChange in Net Assets = Change in All Revenues - All Expenses

Change in Net Assets

Adjusted Net Operating Income

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KEY FINANCIAL DRIVERS

Does not include gifts, endowment return

UW Salaries47%

Benefits16%

Purchased services14%

Supplies and materials

10%

Depreciation7%

Other6%

2018 OPERATING EXPENDITURES: $5.9 BILLION

UW

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KEY RISKS & OPPORTUNITIES

OPPORTUNITIES

> Long-term growth in endowment $$

> Increased capital capacity through public private partnerships/innovative finance $

> Improved funding state partnership

> Higher research growth $

> Lower long-term capital spend through life cycle maintenance approach $

> Alternative tuition models $

RISKSInstitutional

> Talent management– Need to attract/retain top talent– Risks of salary & benefit growth

outpacing revenue growth $$$$

> Deferred maintenance backlog $$

Academy/Teaching> Limits on tuition growth $$> Declining state share since 2008 $

UWM> Market risks $$> Sufficient access to capital $$

Research> Limited federal research revenue

growth $> Ability to maintain market share $

$ (low), $$ (medium), $$$(high) financial impact

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> As a diverse, public, state research institution with academic medical center, UW will always face budgetary challenges and tough choices, which will require vigilant, tight fiscal management

> Core institutional strength provides the foundation for financial sustainability

– Academy: Top tier institution in high growth region

– Medicine: Highly rated comprehensive medical system with aging population and rising share of income dedicated to health care

– Research: Long standing strong market share of federal grants; strengths in key areas (engineering, computer science, life sciences, health care)

– Culture: diverse, entrepreneurial, dynamic institution

> Attention to, and development of, underlying institutional strengths can allow UW to continue to evolve to meet its dynamic mission and maintain financial sustainability

KEY FORECAST TAKEAWAYS

The University’s “…main challenge in the future is identical to its main challenge during at least my entire time here, namely, securing the necessary financial support so it can retain and whenever possible enhance its high quality as a research university…” President Gerberding 1994

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> Improved performance in core operating, and self-sustaining operations

– As of February 2019 month end, self-sustaining operations reflect a FYTD margin of 2.81%, which is slightly positive to February 2018’s FYTD margin of 2.03%

– Core expenditures as a percent of budget are tracking to historical trends, despite revenues trending slightly higher than budgeted+

> Unit budget meetings will conclude April 16, and operating budget targets, based on proposed rates and fees, enrollment targets, and major areas of investment will be presented in May

FY20 BUDGET B-1.1/204-19 4/10/19

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FY20 Budget

> Consistent themes of budget meetings include concerns with regard to salary and benefit growth without sufficient new revenues

> These risks are evident in enterprise forecast, and require careful alignment of budget planning

> Primary levers to accomplish this include: – Containing net new FTE growth, tying recruitments to key strategies

within each of the operating units

– Mitigating growth of salaries, contingent upon revenues and budget authority from the state of Washington

– Intentional enrollment, tuition and financial aid strategies

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Board of RegentsApril 10, 2019

Deferred MaintenanceEffectively planning for life cycle costs

ATTACHMENT 2B-1.2/204-19 4/10/19

Page 1 of 11

2

I. Reviewing the Challenge

II. Proactive Plan to Address It

III. Utilities Infrastructure

AGENDA

8-inch diametermain water supply pipeMagnuson Health Sciences (2019)

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Deferred Maintenance Across UWSeattle Campus Education & General (E&G) - $1.7 Billion

3

Education & General Auxiliaries Bothell & Tacoma

Seattle Campus $1.7B

Housing - $200M UW Bothell - $80M

Utilities* - TBD ICA - $45 MUW Tacoma* - TBD

Medicine* - TBD

* Estimates not yet available

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$5

$-

$1

$2

$3

$4

$5

$6

2011 2015 2019 2023 2027 2031 2035 2039 2043 2047

Bill

ion

s

Deferred Maintenance BacklogSeattle Campus Education and General

4

$5.4 billionProjected backlog in 2047

Manageable risk = $80 per SF

$2.5 billion

$1.7 billionCurrent deferred

maintenance backlog

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Total Spending on FacilitiesUW Facilities reorganization optimizes life-cycle decision making

5

• Excludes auxiliaries (e.g. UW Medical Center, HFS, Transportation, and ICA), affiliated units (e.g. Northwest Hospital and Valley Medical Center), and Tacoma and Bothell campuses

• Minimum Target = Capital and PM spend that will keep backlog at “manageable risk” level

Asset ReinvestmentMajor Capital

Annual StewardshipLife Cycle Renewal

Daily ServiceReactive

Utilities + RentEnergy, Water, OPEX

Capital Funds~$300M / yr

Operating Funds~$100M / yr

Fixed Costs~$150M / yr

• Utilities Infrastructure• Modernization• Deferred Maintenance

2018 E&G Actual = $22MMinimum Target = $90MPeer Average = $66M

• Corrective Maintenance• Customer Directed

• Custodial• Grounds

2018 Actual = $53MPeer Average = $56M

• Electricity• Fuel• Water/Sewer• Lease space

2018 Utilities = $39MPeer Average = $46MNo peer data on leases

Minor CapitalPreservationProg. Renewal

2018 E&G Actual = $7M• Target Renewal = $30M• Target PM = $6.5MTotal Min. Target = $36.5MPeer Average = $22M

Preventive Maintenance

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Total Capital InvestmentMost of capital allocation has been for new space

6

$-

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

$400,000,000

$450,000,000

$500,000,000

$550,000,000

2013 2014 2015 2016 2017 2018 2019

Annual Stewardship Operating Budget - PM Asset Reinvestment Capital for New Space/IT Target Reinvestment

Increasing DM Backlog

Annual Reinvestment Target

Increasing DM Backlog

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UW Compared to Research Peers (2018)

Peer Research Institutions surveyed: Carnegie Mellon, Georgia Tech, Johns Hopkins, MIT, Northwestern, Penn State, University of Florida, University of Georgia, University of Illinois, University of Minnesota

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8

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

$400,000,000

$450,000,000

$500,000,000

$550,000,000

2013 2014 2015 2016 2017 2018 2019

State UW Equity Debt Donor

Capital FundingFund sources are varied across the portfolio

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Deferred Maintenance StrategyMajor initiatives for reducing backlog

9

1. Conduct campus-wide Facility Condition Assessment

2. Increase capital reinvestment

– allocate 50% of major capital available to replace/renovate existing space

3. Fully fund annual stewardship for all new buildings

4. Fully fund preventive maintenance

5. Consolidate and optimize utilization of office & support space

6. Reinvest energy savings

7. Other strategies

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$5

$2

$-

$1

$2

$3

$4

$5

$6

2011 2015 2019 2023 2027 2031 2035 2039 2043 2047

Bill

ion

s

Flattening the CurveStrategic approach could reduce backlog to manageable risk in 20 years

10

$5.4 billionprojected backlog in 2047

manageable risk

50% to Replace/Renovate

Space Utilization

Fully Fund O&M for New

Fully Fund PM

$2.1 billion“under manageable risk line”

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Utilities InfrastructurePreparing for the next 100 years

11

Central steam heating plant• Fossil-fueled system in operation since 1921

• ~$400M required to convert to clean energy (hot water), but state no longer funds major utility infrastructure projects.

• ~$50M in interim capital funding required to maintain reliability of current plant

Electrical infrastructure • Near capacity for U District and UW

• UW & Seattle City Light exploring joint solutions

• SCL may be able to assume significant portion of capital costs within rate design

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ACCESS AND EXCELLENCE: ENROLLMENT & BUDGET

Sarah Norris Hall and Phil Reid April 2019

ATTACHMENT 3B-1.3/204-19 4/10/19

Page 1 of 20

SNAPSHOT: ENROLLMENT AND TUITION

Fall 2018 Total Enrollment (Headcount)

SEATTLE BOTHELL TACOMA TOTAL

UNDERGRAD 32,594 5,411 4,573 42,578

GRAD/PROF 15,305 578 802 16,685

TOTAL 47,899 5,989 5,375 59,263

• Tuition comprises 64 percent of the UW’s general operating fund

• As projected, undergraduates generate 68 percent of total gross operating fee revenue ($587M out of$859M) and 75 percent of total net operating fee revenue ($495M out of $658M)

• Of undergraduate net operating fee revenue, more than half is derived from nonresident undergraduates

As published in the FY19 operating budget:

0m

250m

500m

750m

FY12 FY13 FY14 FY15 FY16 FY17 FY18 ProjectedFY19

Grad/Prof Nonresident

Grad/Prof Resident

Undergraduate Nonresident

Undergraduate Resident

Projected Tuition by Student Category, All Campuses, Net of Aid – FY19

Note: Tuition figures presented are representative of the operating fee; thus exclusive of building fee

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PRESENTATION ROADMAP

I. Application

II. EnrollmentIII. Outcomes

IV. Looking Ahead: Risks and Opportunities

II. Enrollment

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• Continued increase in number of applications across all applicant categories

• Watching slight decline of grad/prof applications

FRESHMAN APPLICATIONS: 2014 to PRESENTB-1.3/204-19

4/10/19 Page 4 of 20

APPLICANT PROGRAM OF INTERESTSchool Program 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Built Environments 2.44% 2.00% 1.77% 1.43% 1.36% 1.16% 1.17% 1.17% 1.20% 1.09%

College of Arts and Sciences

Arts (A&S) 4.52% 4.10% 3.68% 3.00% 2.97% 3.03% 2.91% 2.70% 2.72% 2.45%

Health Sciences (A&S) 6.08% 5.30% 5.37% 4.87% 3.83% 3.31% 3.32% 3.23% 3.29% 4.48%

Humanities (A&S) 5.03% 4.60% 4.05% 3.21% 2.98% 2.86% 2.51% 2.43% 2.73% 2.13%

Natural Sciences (A&S) 22.18% 21.48% 22.31% 23.23% 24.52% 24.42% 23.82% 24.59% 25.19% 22.20%

Social Sciences (A&S) 18.19% 15.60% 14.79% 14.87% 14.35% 13.51% 13.32% 13.47% 13.62% 11.18%

College of Education 0.77% 0.82% 0.77% 0.78% 0.80% 0.76% 0.78% 0.78% 0.81% 1.05%

College of EngineeringComputer Science 2.41% 2.68% 2.72% 3.68% 4.82% 6.63% 7.97% 9.36% 9.85% 9.34%

Engineering 13.27% 14.42% 14.46% 15.40% 15.92% 16.52% 16.12% 15.42% 14.81% 15.24%

College of the Environment 2.73% 2.30% 2.66% 2.47% 2.37% 2.34% 2.49% 2.51% 2.70% 1.88%

Foster Business School 14.05% 13.84% 13.86% 14.03% 13.33% 13.05% 13.05% 11.88% 11.52% 10.73%

School of Medicine 1.22% 1.18% 1.74% 1.23% 1.32% 1.10% 0.93% 1.06% 1.19% 0.43%

School of Nursing 2.60% 2.87% 2.97% 3.07% 3.06% 2.74% 2.87% 2.70% 2.99% 2.69%

School of Public Health 0.18% 0.18% 0.13% 0.13% 0.57% 0.75% 0.87% 0.98% 0.96% 0.75%

School of Social Work 0.19% 0.23% 0.22% 0.20% 0.20% 0.20% 0.22% 0.22% 0.19% 0.16%

The Information School 0.05% 0.09% 0.09% 0.08% 0.08% 0.10% 0.16% 0.18% 0.27% 0.28%

Undecided 4.07% 8.29% 8.40% 8.32% 7.51% 7.52% 7.47% 7.31% 5.95% 13.91%

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• WA resident enrollments are relatively stable.

• Significant “bump” in domestic non-resident enrollment.

FIRST YEAR ENROLLMENT: 2014 to PRESENTB-1.3/204-19

4/10/19 Page 6 of 20

ENROLLMENT TRENDS FOR SELECT UNDERGRADUATE MAJORS

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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ANNUAL % CHANGE OF UNDERGRAD. MAJOR ENROLLMENTS (SELECT MAJORS)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Arts Humanities Natural Sciences Social Sciences Computer Science Engineering

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DEMAND FOR HIGHER EDUCATION

• Changes in college-going populations will vary by region and institution type

• Northeast and Midwest will feel decreases most acutely

• Will be spared from ‘birth dearth’ to some extent, the PNW may face increased competition from institutions in these regions

• As such, grow cautiously:

• Focus on WA residents

• Closely attend to interplay between tuition, enrollment and aid policies

• Ensure that our students have access to excellence

United States College-Going Forecast (Grawe, D.)

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RESIDENT UNDERGRADUATE TUITION AMONG TOP PUBLICS

$18,454

$17,641

$16,004

$15,730

$15,262

$14,974

$14,970

$14,402

$14,391

$14,184

$13,961

$13,678

$13,201

$12,424

$11,830

$11,207

$10,968

$10,726

$10,606

$10,595

$10,556

$9,992

$8,987

$6,381

Penn State

U Virgina

U Illinois-Urbana-Champaign

UConn

U Michigan-Ann Arbor

Rutgers U-New Brunswick

Clemson

UC-Davis

UC-Santa Barbara

UC-Berkeley

UCSD

UC-Irvine

UCLA

Georgia Tech

U Georgia

UW-Seattle

Texas A&M

Ohio State

U Texas-Austin

U Maryland-College Park

U Wisconsin-Madison

Purdue

UNC-Chapel Hill

U Florida

Source: 2018-19 AAUDE, U. of Virginia system survey, and institution websitesPeer Set: U.S. News 2019 Top 25 Publics

Median: $13,678

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NON-RESIDENT UNDERGRADUATE TUITION AMONG TOP PUBLICS

Source: 2018-19 AAUDE, U. of Virginia system survey, and institution websitesPeer Set: U.S. News 2019 Top 25 Publics

$49,350

$49,020

$43,394

$43,383

$43,176

$42,953

$42,670

$42,193

$38,098

$37,480

$36,805

$36,724

$36,636

$36,588

$35,216

$35,170

$34,858

$33,020

$30,404

$32,574

$31,282

$30,742

$28,794

$28,658

U Michigan-Ann Arbor

U Virginia

UC-Davis

UC-Santa Barbara

UC-Berkeley

UC-San Diego

UC-Irvine

UCLA

U Conn

U Texas-Austin

U Wisconsin-Madison

Clemson

Texas A&M

UW

U Maryland

UNC-Chapel Hill

Penn State-University Park

Georgia Institute of Technology

U Georgia

U Illinois-Urbana-Champaign

Rutgers-State U of New Jersey

The Ohio State U

Purdue U

U Florida

Median: $36,724

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RESIDENT UNDERGRADUATE TUITION OVER TIME

$7,125

$8,122

$9,746

$11,305 $11,305 $11,305$10,768

$9,694 $9,909 $10,127

+14.0%

+20.0%

+16.0% 0% 0%

-5%

-10%

+2.2%+2.2%

$k

$2k

$4k

$6k

$8k

$10k

$12k

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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NON-RESIDENT UNDERGRADUATE TUITION OVER TIME

$23,800 $24,750$27,230

$28,860$30,879

$32,424 $33,072 $33,732 $34,473$35,508

+4.0%

+10.0%

+6.0%

+7.0%+5.0%

+2.0%+2.0%

+2.2%+3.0%

$k

$5k

$10k

$15k

$20k

$25k

$30k

$35k

$40k

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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RISKS/OPPORTUNITIES OPPORTUNITIES

Tri-campus enrollment shifts and changes

Intentional work admitting exceptional students into pathways for success

Alignment of recruitment strategies and financial aid decisions will improve our planning (less reactive)

Facilitate student understanding of academic opportunities

Continue focus on exceptional WA resident students

RISKS

Strain on housing, classroom demand and student support services

Maintain current course with regard to enrollment and intended major

Some tuition rate increases may have an impact on yield

Resident undergraduate tuition rate policy

International student enrollment

National ‘birth dearth’

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ENROLLMENT MANAGEMENT: CURRENT WORK

Admission and Enrollment

Communications and Outreach

Journey to Major

Curricular/Co-Curricular

• Improving how we describe opportunities to prospective students.

• Revisiting holistic review.

• Developing services to support student journey from admission to major (e.g., tracking preferred major, common internal application portal).

• Curricular innovation (e.g., data science initiative).

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APPENDIX

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Source: Migration Policy Institute

U.S. INTERNATIONAL STUDENT ENROLLMENTS: 2007–2017*

17B-1.3/204-19

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Federal Support State Support UW Support Total

2010-2011 $32,217,000 49% $25,988,000 39% $7,618,000 12% $ 65,823,000

2011-2012 $35,583,000 41% $32,378,000 37% $18,654,000 22% $ 86,615,000

2012-2013 $25,304,000 36% $29,900,000 40% $31.420.000 24% $106,454,000

2013-2014 $42,300,000 37% $40,500,000 36% $29,900,000 27% $112,100,000

2014-2015 $37,259,000 33% $41,276,000 37% $32,876,000 30% $111,411,000

2015-2016 $38,425,000 36% $42,479,000 39% $26,855,000 25% $107,758,000

2016-2017 $36,801,000 38% $38,650,000 40% $21,082,000 22% $ 96,533,000

2017-2018 $41,533,000 41% $37,577,000 37% $21,936,000 22% $101,046,000

2018-2019 $43,847,000 42% $47,301,000 45% 14,227,000 14% $105,375,000*

*estimated

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LOAN DEBT: UW UNDERGRADUATES-TRI-CAMPUS

# of Graduates

# of Graduates w/ Debt

Total LoanVolume

Average

2017-18 10,803 4,319 $95,727,524 $22,164

2016-17 10,351 4,280 $95,944,268 $22,417

2015-16 10,315 4,489 $98,994,539 $22,053

2014-15 9,881 4,581 $104,400,716 $22,790

2013-14 9,629 4,707 $101,459,945 $21,555

2012-13 9,461 4,713 $101,193,043 $21,471

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UNDERGRADUATE DEBT LEVEL BY INCOME LEVEL- TRI-CAMPUS

2017-2018 Resident Undergraduates

Family Income # of Students Average Income Average Debt

$0 – 24,999 1,220 $10,360 $24,399

$25,000 – 49,999 731 $36,239 $20,882

$50,000 – 74,999 456 $62,440 $19,938

$75,000 and above 1,492 $150,193 $19,803

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