Presentation to Faculty Task Force on Data Analysis Strategic Budget Review March 23, 2010

1. Presentation to Faculty Task Force on Data Analysis Strategic Budget Review March 23, 2010

2. Strategic Budget Review Themes: - Budget Gap: $13.0 million - Tuition Dependent Institution - Labor Intense Enterprise - Multi-Year Solution (1-3 years) • Revenue Enhancements • Longer it takes to find permanent solutions, the longer the short-term non-sustainable actions must continue.

3. Overview of our Financial Challenge • Last year, a financial crisis and steep recession triggered a serious deficit—much larger than in previous years. • A different budget challenge this year • Transition away from temporary budget solutions to a sustainable financial model

4. University Faces a Persistent Deficit Problem (Structural Deficit) • About $13 million, or roughly 10% of our overall budget • A budget model that includes competitive pay increases, restores the retirement contribution and returns the endowment spending rate to 5%, given our enrollment and revenue projections, leaves us $13 million short.

5. Status Quo Is Not A Good Option, Otherwise We Will Face the Same Deficit Problem Year After Year • Not just a cyclical problem—when economy recovers, our budget still will be in deficit • This is a much larger deficit than those faced in previous years. This is not just “business as usual.”

6. Multi-Year Budget Strategy • FY 08/09 • Belt tightening • Use of one-time revenue sources • Minimize impact on University Community • Use this time to effectively plan for the future • FY 09/10 • Maintain “market share” (enrollment) • Short term budget balancing actions • Adjust institution’s overall expenditure profile by 7% to 10% • Develop plan to address structural deficit challenge • FY 10/11 to FY 13/14 • Close structural gap through combination of implementing permanent spending reductions and realizing revenue gains

7. How did the persistent, structural deficit develop? • Confluence of several factors • Recession and financial market crisis • But also a result of trends that started developing over several years

8. Rate of Growth in Net Tuition Revenue Slowed Considerably in 2005 • School of Business revenue began falling in 2002 • Offset by high growth rates in College • School of Education experienced strong expansion

9. In 2005, University and College Enrollment Peaked • Total enrollment has declined since 2005 • Revenue growth becomes dependent upon tuition increases alone

10. Between 2005 and 2008, Endowment Growth Offsets Enrollment and Tuition Plateau • Centennial Campaign • Stock market boom

11. After 2005, Expenditures Continue to Grow • Competition for students: “arms race” • Continued investment in personnel, facilities, and technology • Government mandates and legal requirements

12. Financial Crisis and Recession Revealed and Worsened Revenue Trends • Net revenue rises 1-2 percent • All three units are impacted • This time, however, enrollment decline is reinforced by endowment decline

13. Our Immediate Response to Last Year’s Budget Crisis • A combination of temporary and permanent adjustments • Reduction in admin/staff expenditures of $2.9 million. Closed 42 positions, including the lay off of 28 employees. • Reduction in non-personnel expenditures of $2.2 million • Salary freeze • Raised endowment draw to 8.1% • Reduced retirement contribution rate to 5% 12

14. Sustainable Actions • Long-term solutions required beginning this year • Started systematic review of structural issues • Identified size of problem, sources, and targets for changes • All in preparation to develop solutions 13

15. Challenges Will Grow in Future • Period of rapid change • Demographics • Competition • Weakened government support, increased government oversight • Pricing Pressure

16. REVENUE 15

17. Revenue Net of Financial Aid FY 2009/10 (Original Budget) 16 16

18. UNIVERSITY OF REDLANDSFull Time Tuition Equivalents (FTTE)

19. Net Revenue 18

20. UNIVERSITY OF REDLANDSNet RevenueFY 06/07 through FY 10/11 * * Endowment Spending Rate shown at 5%: 1% = $1.1 M

21. UNIVERSITY OF REDLANDSChange in Net Student RevenueFY 02/03 through FY 10/11 * Projected

22. Financial Aid Expenditures and College Undergraduate Discount Rate (right axis) 21 21

23. Comparison of Endowment FMV and Payout for Fiscal Year ($M) 22 22

24. UNIVERSITY OF REDLANDSTotal Gift IncomeFY 04/05 through FY 08/09

25. EXPENDITURES 24

26. Budgeted Expenses FY 2009/10 (Budget) Total $97,705,916 Personnel Approved budget as of July 2009 All Personnel Instruction & Academic Support Institutional Support Student Services Auxiliary Other Non-Personnel (43%)

27. Personnel Expenditures

28. Debt Service and Debt Service as a % of Operations Budget (right axis) A3 MOODY’S CREDIT RATING Portion of debt paid by unrestricted trust terminations and bequests went from $1.3M in FY05 to $250K in FY09, following a policy to move Redlands away from dependence on that source. 27

29. Capital Expenditure History FY 1969/70 through FY 2008/09 (five-year periods) 28 28

30. STRUCTURAL GAP

31. Structural Gap If conditions in FY05 had held until FY09 and forward, Redlands would have seen the following positive impacts: Enrollment $3.1M Financial Aid $1.7M Academic Expense $5.0M Institutional Expense $0.7M Debt Service $2.5M Total $13.0M

32. Responses in FY10 Redlands dealt with a total $13.8M budget gap for FY10 a combination of moves, many of which are unsustainable or only partially sustainable. Responses that should be partially sustainable Staff reduction in force $2.9M Reduction in support costs $1.9M Unsustainable responses Excess endowment spending $3.8M Elimination of pay increases $1.8M Reduction of retirement contribution from 9% to 5% $1.3M Deferred capital and IT spending $780K Total partially or completely unsustainable responses $12.5M

33. UNIVERSITY OF REDLANDSSummary BudgetFY 09/10 and FY 10/11 * * Endowment Spending Rate shown at 5%: 1% = $1.1 M

34. Additional Pressures in Coming Years • Deferred Maintenance: Sightlines identified critical needs of $3-5M per year for 5 years • Endowment: stock market collapse flows through calculations for payout in future years--$1M gap by FY13 • Marketing: Critical investment to enhance revenue and market position.

35. Targets for Solution • Combination of revenue enhancements and expense • reductions (50/50 Approach) • Revenue Target • Tuition Enhancements $5,500,000 • Expenditure Reduction Targets • Academic Programs $3,700,000 • Student Life Programs $ 350,000 • Institutional $2,230,000 • $6,280,000 • Combined Total $11,780,000 • Developing goals for School of Continuing Studies, giving • and other revenue sources

36. Targets for Academic Programs Expenditure Reduction Targets College of Arts & Sciences $2,500,000 School of Business $1,000,000 School of Education $ 200,000 Total $3,700,000

37. Previous Expenditure Reductions, FY 2009 - 2010 Expenditure Reductions (Net) Academic Programs $700,000 Student Life Programs 500,000 Institutional 3,440,000 Total $4,640,000

38. FY 10/11 Budget Similar to Last Year • Likely will continue with 5% retirement contribution rate • No salary increases (except faculty promotions) • Offer another early retirement package • Continue to hold or freeze certain positions • Continued higher endowment draw will require laying out a path to balanced budget 37

39. Reconciliation Phase I Reductions (FY 2009-2010) (Net) $4.64 million Phase II Reductions (FY 2010-2011) $6.28 million Total Expenditure Reductions $10.92 million Revenue Enhancements $ 5.50 million Total $16.42 million Expenditure Growth ($ 3.05 million) Revised Total $13.37 million