Significant financial challenges hang in the balance for CMU according to an annual fiscal audit by Plante Moran, such as $100 million in unfunded future pension liabilities and a decrease of $9 million in physical cash-on-hand.
These challenges come as the university wrestles with reduced enrollment and tuition figures – a sector of the budget that comprises nearly 67 percent of CMU’s operating revenue.
“You are very heavily reliant on your student tuition and fees, so I’m glad to hear what you are doing with enrollment planning because that drives your revenue,” said Vicki VanDenBerg of Plante Moran, who delivered the presentation on the audit Thursday at the Board of Trustees meeting. “You’re starting to get more federal grants and contracts, and as the medical school continues to grow, you’d hope that you’ll become less reliant on tuition and fees. That’s not where you are right now.”
According to the audit, CMU’s overall net position increased by $32.3 million to a yearly total of $673.4 million. Net position is defined as being the difference in total value of assets and the cost it takes to maintain that value.
The calculation was created by looking at increases in CMU’s total assets and non-operating revenues, as well as decreases in total liabilities, account payments and long-term debt.
As compared to last year, the university increased its total net position to $641.1 million. Operating revenues took a $2 million hit as compared to last year’s figure of $321.5 million – total operating revenues stand at $319.5 million. Operating revenues are comprised of factors such as tuition and fees, federal, state and local grants, as well as “auxiliary enterprises,” according to the audit.
Any increases in revenue were brought about by CMU’s non-operating revenues, including state appropriations and increases in investment income. State appropriations grew to a total $71.3 million, up from $68.1 million last year, while external financial investments rose to $24 million, up from $1.6 million last year.
Although these figures show signs of growth, the audit exposed the university’s physical cash-on-hand as down by $9 million from last year. VanDenBerg said this is typical for this time of year when the audit is recorded – just after CMU’s summer break begins.
As of June 30, around the time the audit was complied, CMU had $64 million in cash-on-hand. On average, the university has close to $108 million worth of cash-on-hand, and at its highest point in January holds $147 million of physical cash, according to data offered by Steve Smith, director of Public Relations at CMU.
Yet the biggest hardship presented to trustees was the $100 million in state-mandated, unfunded pension benefits it must record by June 2015.
According to VanDenBerg, each public school, community college and public university pays into to the same retirement benefit fund issued by the state. In order to fund the retirement program, each institution must book its appropriate share based on number of employees paying into the fund. Estimates of how much CMU will be paying into the fund stands at $100 million, up $25 million from last year’s estimate.
This number will directly reduce the university’s unrestricted net position. In 2012, the university’s unrestricted assets totaled $279.7 million. This year, that amount fell by $3.6 million to $276.1 million.
The news became more solemn as VanDenBerg explained how much the school is already paying into the fund.
“You are funding toward the unfunded portion right now at $6 million this past year,” she said. “That’s cash out the door. Your pay-as-you-go was $4.6 million. So you are putting a lot of money into this plan every year, and you’re still going to have to book a $100 million liability.”
This portion of the liability payment does not included healthcare benefits, VanDenBerg said. That portion is worked out as a separately-reported component of retirement benefits, and is currently a pay-as-you-go system.
“I don’t want to inflate this, but that does reduce our numbers significantly,” said Trustee Robert Wardrop. “But at least everything else looks good.”