U’s financial outlook upgraded

The school’s outlook went from “negative” to “stable” in a recent financial report.

Graison Hensley Chapman

For University of Minnesota administrators piecing together the schoolâÄôs future amid a massive state budget shortfall, having the schoolâÄôs 18-month financial outlook upgraded from “negative” to “stable” might be cold comfort.

But that “stable” designation, coming from a report released last week by powerhouse credit rating agency MoodyâÄôs Investors Service, places the University among the stronger-performing schools in the country. ItâÄôs a gem of good news after legislative Republicans proposed cutting $89.2 million from the UniversityâÄôs forecasted 2012-13 budget.

But the report outlines several fundamental attributes of a strong school that bode well for the UniversityâÄôs long-term health. It associates universities in good position with top-ranked academic programs, diversified sources of revenue and strong student and faculty demand. The University, which maintains an Aa1 credit rating âÄî the second-highest possible âÄî falls into that category.

The University has eight sources of revenue, with tuition the greatest at 22 percent. State support, which accounts for 18 percent of funding, comes in second. The median level of state support for public universities with the same credit rating is 20 percent. University-run businesses and different types of grant money contribute nearly 10 percent each.

University Chief Financial Officer Richard Pfutzenreuter highlighted strong student demand as proof of the schoolâÄôs health. The University admits roughly 5,200 undergraduates each fall. Last application period it received more than 36,000 applications, according to the Princeton Review, an admissions consulting firm.

“WeâÄôve got plenty of customers,” Pfutzenreuter said.

But high demand does not guarantee strong financing in a fragile economy. Pfutzenreuter said his office is modeling budgets that include a range of potential cuts from the Legislature, which is struggling to fill a state budget deficit of $6.2 billion.

“The process has to unfold more,” said Pfutzenreuter of this yearâÄôs legislative session, but added that “there are going to be significant additional cuts to the University for the next two years.”

As recently as 1994, state support covered 32 percent of the UniversityâÄôs budget, an allocation 44 percent higher than current levels. Tuition made up 15 percent of the budget that year.

It will be difficult to raise tuition in response to lagging state aid. The MoodyâÄôs report cites the decline in home equity as limiting tuition increases, as many parents borrow against it to pay for their childâÄôs education.

While public universities reported a median tuition increase of 11 percent in 2011, according the report, “this pace of growth is not expected to be maintained due to political pressures to limit both tuition increases and out-of-state student enrollment.”

Pfutzenreuter said state cuts are likely to continue even after the economy recovers, with its expenditures on K-12 education and health care for aging baby boomers eventually crowding out everything else.

“For someone sitting in my chair 20, 25 years from now,” he said, “itâÄôs going to be cut in half again. WeâÄôre going to end up at a lower base, and I think the trend is unstoppable.”

He offered few specifics about how the University will stem the gap created by the lagging state funding but said that the Board of Regents will be taking up related issues at its March meeting.

The report cited generous philanthropic support as a key trait associated with a strong outlook.

Martha Douglas, spokeswoman for the University of Minnesota Foundation, the schoolâÄôs donations arm, said the decline in donations can be explained by large, one-time contributions to the University in 2008 and 2009. The first yearâÄôs $289 million haul included a $65 million donation from Minnesota Masonic Charities; the $267 raised in 2009 included the $50 million founding donation to Amplatz ChildrenâÄôs Hospital and a $40 million donation for diabetes research by the Richard M. Shulze Family Foundation.

“If you take out those large gifts, the trend shows more of a flat picture than one of decreased giving,” Douglas said. Without the large gifts âÄî Douglas said the foundation received no donations larger than $15 million in 2010 âÄî the decrease from 2008 to 2009 was 21 percent.

The trend reversed from 2009 to 2010, which saw a 5 percent increase.

The report noted a bright spot for all universities: The attitudes underpinning demand for higher education should remain consistent.

“We expect that demand for higher education will remain robust over the long term and continue to expand globally,” it stated.

But universities shouldnâÄôt expect a sharp influx of students to fill their coffers with tuition money anytime soon: “The boom period that characterized demand in the sector since the mid-1990s has ended.”