Overview of Financials

from Senior Vice President Samuel E. Jones '75, M.B.A. '80

William & Mary’s Financial Performance
Senior Vice President, Sam Jones '75, M.B.A. '80

Fiscal year (FY) 2016 saw revenues remain strong, expenditures reflect strategic priorities and private giving reach record levels. William & Mary’s financial health reflects our ability to recruit outstanding students, our status as a public institution within the Commonwealth of Virginia and our reputation as a nationally and internationally recognized “Public Ivy.” It also impacts our ability to raise revenue through tuition and fees, grants and contracts, philanthropy, as well as an ongoing program to identify savings and reallocate funds toward higher-priority items.

William & Mary recruits, admits and retains top-caliber students even as the university competes against the most selective public and private institutions in the country. For fall 2016, freshman applications totaled 14,382 plus another 887 undergraduate transfer applications. With an incoming class size of approximately 1,500 students, W&M has almost 9.5 applicants for every student enrolled. The credentials of our admitted students remain strong, reflecting the highly selective nature of the university. This strength, coupled with our institution’s academic reputation, suggests significant student demand well into the future.

State support for operations is a function of general economic conditions and the priority assigned to higher education among competing demands for commonwealth resources. In FY 2015, unstable financial conditions resulted in a midyear 5.7 percent reduction in state funding for William & Mary. The university permanently absorbed this base reduction in FY 2016. This state action confirms that we should exercise caution in making budget commitments that assume state investment. At the same time, revenue from tuition and fees; self-supporting auxiliary enterprise activities (residence halls, food service, intercollegiate athletics, etc.); grants and contracts; and private giving provide the diversity of funding critical to the university’s overall financial health.

In FY 2016, the university continued implementation of the William & Mary Promise, an operating model that provides critical resources to secure the future of Virginia’s distinctive “Public Ivy.” The Board of Visitors and the administration remain focused on attracting and retaining the very best students, faculty and staff while enhancing program quality, affordability and access for Virginia students. As tuition is reset for each incoming class, the Promise provides a four-year tuition guarantee, relief for low- and middle-income Virginia families with need, less debt for Virginia students and additional in-state enrollment slots.

During FY 2016, funds generated through the Promise, in combination with private and reallocated funds, allowed the university to move forward with key elements of its strategic plan. Salary support for faculty and staff was a major priority with faculty merit-based increases averaging 4.5 percent and staff 2 percent. Since implementation of the Promise in 2014, merit-based increases for faculty have averaged 5.3 percent. Financial aid for undergraduate and graduate students and programmatic support for additional enrollment, eLearning, curriculum enhancements, faculty research and instructional technology, including the first steps in implementing a Customer Relationship Model, also received significant funding and served to move the university forward in these vital areas.

By June 30, 2016, the consolidated value of endowments held by all of the various entities supporting William & Mary and its programs totaled $803.7 million. Over time, consistent investment performance by the Board of Visitors portfolio and the William and Mary Investment Trust (WAMIT), along with increasing gift flow, will allow for endowment growth. The Board of Visitors’ endowment and WAMIT, which includes the endowment funds of the College of William & Mary Foundation and other College-related foundations, are the largest of William & Mary’s investment portfolios. These portfolios remain highly diversified across asset classes. A more detailed discussion of investment performance follows.

State support for operations

For the first time in William & Mary’s history, philanthropy now exceeds state funding as part of our operating budget. The university secured $143.1 million in gifts and commitments during FY 2016, bolstered its undergraduate alumni participation rate to 28.7 percent and strengthened alumni engagement. With this record-breaking year in fundraising and greater investment in University Advancement, we expect an increase in private support, helping William & Mary fund priority areas such as scholarships aid, teaching excellence, collaborative research and other vital programs. We also expect this upward trend to continue as the university takes its $1 billion For the Bold campaign on the road and into cities around the globe.

Facility Investment

Facilities activity remains brisk on campus. As President Reveley mentioned, Phase 3 of the Integrated Science Center (ISC 3), a renovation of Tyler Hall and a renovation/expansion of Zable Stadium were completed. Looking forward, funding from the commonwealth allows us to address the programmatic and space needs of William & Mary’s various arts programs as well as begin planning for an additional science facility. Prior studies have more than adequately documented the condition and space needs in theatre, speech, dance, music, art and art history, as well as the Muscarelle Museum of Art. Private support, coupled with state funding, has led to the creation of an “Arts Quarter,” providing quality instructional, performance and exhibition space for our students, faculty and visitors. A recent example of private support we announced in this area is the future creation of the new multimillion-dollar, state-of-the-art Martha Wren Briggs Center for the Visual Arts.

Debt Management

To date, William & Mary has issued none of its own debt but rather had debt issued on its behalf by the Commonwealth of Virginia. While the university remains responsible for principal and interest associated with this debt, this approach allows the university to minimize issuance costs and take advantage of the commonwealth’s strong credit position.

As of June 30, 2016, outstanding long-term debt totaled $230.1 million, a 4.3 percent decline from the prior year. FY 2016 debt consists of $73.2 million in 9(c) bonds and $156.9 million in 9(d) bonds. Section 9(c) bonds are general obligation bonds issued by the commonwealth on behalf of the university pursuant to Section 9 of Article X of the constitution of Virginia. As such, while William & Mary is responsible for repayment, these bonds are backed by the full faith and credit of the commonwealth. Section 9(d) bonds are issued through the Virginia College Building Authority’s Pooled Bond Program and backed by the general revenue pledge of the university. As debt is issued, William & Mary’s fee structure is adjusted to generate the funds necessary to support any new debt issuance or, in certain cases, private funds to support the necessary debt service are identified consistent with the requirements of the university’s Debt Management Policy.

Long-term debt is used primarily to support the construction or renovation of major auxiliary facilities, including residence halls, university centers and dining facilities, parking improvements and recreational and athletic facilities. In limited cases, university-supported debt service for academic facilities has been used to supplement projects receiving significant support from the commonwealth or for projects where significant private support is available. The typical debt vehicle is a 20-year fixed-rate 9(c) or 9(d) bond issued by the Commonwealth of Virginia. Over the course of the bond period, bonds may be refinanced to take advantage of cost-saving opportunities. The university currently has no outstanding variable rate debt.

While William & Mary has not issued its own debt, Standard & Poor’s reaffirmed its “AA” issuer credit rating for the university in 2016, citing strong student quality and demand, consistent break-even financial performance, and solid fundraising and endowment.

The university’s Debt Management Policy stipulates that maximum annual debt service as a percentage of total operating expense shall not exceed 10 percent. This ratio stood at 6.1 percent for FY 2016. The debt service ratio has remained reasonably stable during the past few years and we expect similar stability for FY 2017 and FY 2018, even as new debt is issued. This is attributable to new debt being issued at an overall lower interest rate, systematic refunding of existing debt to take advantage of lower interest rates, and a steady increase in operating expenditures.

W&M Revenue and Expenses Chart

VIMS Revenue and Expenses Chart

Future Outlook

Our future should reflect the positive results, and some challenges, experienced in FY 2016. Competition for admission to William & Mary will remain intense, allowing the university to meet its enrollment targets while admitting the highest-quality students.

State support will remain unsteady as higher education competes for limited state funds in an uncertain economic environment. Governor Terry McAuliffe D.P.S. ’14 and the General Assembly see higher education as a priority in allocating state funds. However, funding remains subject to revenue availability. While the commonwealth’s 2016-2018 biennial budget provided over $300 million in incremental operating support to higher education in Virginia, reversing the recent trend of declining state support for the state’s colleges and universities, a FY 2016 revenue shortfall is requiring the state to reclaim these funds. This ongoing pressure on state revenue requires that we exercise caution in making budget commitments that assume state support.

While the future of state funding is uncertain, the ongoing implementation of the William & Mary Promise will provide incremental tuition revenue over the next several years. These revenues, when combined with increased private support and a reallocation or reprioritization of operating funds, will allow the university to move forward strategically.

As previously noted, William & Mary continued its fundraising success in FY 2016, raising more than ever before and securing over $100 million in annual gifts and commitments for each of the last four years. William & Mary strengthened alumni engagement and also solidified its status as the No. 1 nationally ranked public university in the U.S. for undergraduate alumni participation. With continued investment in University Advancement, we expect an increase in private funding for William & Mary priorities.

Finally, investments in our academic facilities and infrastructure remain strong with the construction of the ISC 3 and the renovation of Tyler Hall almost fully complete in FY16, as described above. The 2016 General Assembly enacted an unprecedented level of capital support for W&M, identifying three major capital projects valued at approximately $200 million, in addition to providing capital funding for William & Mary’s Virginia Institute of Marine Science. With the infusion of these funds, the university will begin transitioning away from construction of new space to the renovation, retrofit or replacement of existing facilities and supporting infrastructure in order to ensure that the physical inventory does not outstrip resources for operations and maintenance.