from Vice President for Finance Samuel E. Jones '75, M.B.A. '80
William & Mary’s Financial Performance
Fiscal year 2014 saw ongoing improvement in the College’s finances as revenues remained strong, expenditures reflected strategic priorities, and endowment values and private giving were at, or near, record levels. The College’s financial health continues to reflect our ability to recruit outstanding students, our status as both a public institution within the Commonwealth of Virginia and a nationally and internationally recognized “Public Ivy;” the ability to raise revenue through tuition and fees, grants and contracts, and philanthropy; and a willingness to reallocate funds toward higher priority items.
William & Mary continues to recruit, admit and retain top-caliber students even as the College competes against the most selective public and private institutions in the country. Freshman applications to the College reached a new high of 14,552 for fall 2014. The credentials of our admitted students remain strong, reflecting the highly selective nature of the College. This strength, coupled with the College’s academic reputation, suggests significant student demand 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. Fiscal year 2014 saw some rebound in state funding as Virginia’s economy and revenues began to recover. However, recent announcements of a shortfall in state revenues for the 2014–16 biennium followed by state action to reduce William & Mary’s base state support by 5.7 percent in fiscal year 2015 require that we exercise caution in making budget commitments that assume state investment. Revenue from tuition and fees; self-supporting auxiliary enterprise activities (residence halls, food service, intercollegiate athletics, etc.); grants and contracts; and private giving continue to provide the diversity of funding critical to the university’s overall financial health.
Fiscal year 2014 saw implementation of the William & Mary Promise, a new operating model that provides vitally needed resources to secure the future of Virginia’s distinctive “Public Ivy” while markedly enhancing predictability, affordability and access for Virginia students. 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. 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.
The Promise ensures that all Virginia students, regardless of income or financial aid eligibility, will continue to receive a “Public Ivy” education at William & Mary for less than it actually costs the College to provide that education. Even after annual tuition resets, William & Mary as a public university will still be subsidizing the education of all in-state students, even those whose family incomes and assets make them ineligible for financial aid.
During fiscal year 2014, funds generated through the Promise, in combination with private and reallocated funds, allowed the College to move forward with key elements of its strategic plan. Salary support for faculty and staff, financial aid for undergraduate and graduate students, and programmatic support for additional enrollment, faculty research, international and study abroad activities, and instructional technology served to move the College forward in these vital areas.
The rebound in endowment value began in fiscal year 2010 and has continued through fiscal year 2014. By June 30, 2014, the consolidated value of endowments held by all of the various entities supporting William & Mary and its programs totaled $797.6 million, an increase of 14.3 percent above the June 30, 2013, value and a record high for the College. This increase was fueled by strong investment performance by both the Board of Visitors’ portfolio and the William & Mary Investment Trust (“WAMIT”), along with increasing gift flow. The Board of Visitors’ endowment and WAMIT, which includes the endowment funds of the Foundation and three other College-related foundations, are the largest of the College’s investment portfolios. These portfolios remain highly diversified across asset classes. A more detailed discussion of investment performance follows.
For the first time in its history, the College raised more than $100 million in two consecutive years, securing $104.2 million in gifts and commitments during fiscal year 2014. With more than 15,000 undergraduate alumni donors, an undergraduate alumni giving rate of 24.9 percent — the highest since 2006 — and increased investment in University Advancement, we expect continued progress in raising private support for College programs and activities.
Facilities activity remains brisk on campus. The final phase of the Integrated Science Center (ISC3) and demolition inside Tyler Hall are both underway. Capital funding now shifts to the programmatic and space needs of William & Mary’s various arts programs. Prior studies have more than adequately documented the condition and space needs in theatre, speech, dance, music, art and art history, and the Muscarelle Museum of Art. The College’s six-year capital plan submitted to the Commonwealth requested funding to support the phased implementation of an “Arts Quarter,” providing quality instructional, performance and exhibition space for our students, faculty and visitors. The university’s master land use plan, which serves as a guide for future campus development, is in the final stages of revision. This plan was presented to the Board of Visitors for review in November 2014 and will be presented for approval in February 2015.
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 College remains responsible for principal and interest associated with this debt, this approach allows the College to minimize issuance costs and take advantage of the Commonwealth’s strong credit position.
As of June 30, 2014, outstanding long-term debt totaled $238.6 million consisting of $69.8 million in 9(c) bonds and $168.8 million in 9(d) bonds. Section 9(c) bonds are general obligation bonds issued by the Commonwealth on behalf of the College pursuant to Section 9 of Article X of the Constitution of Virginia. As such, while the College 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 College. As debt is issued, the College’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 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. College-supported debt service for academic facilities has been used to provide supplemental funding for 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 College currently has no outstanding variable rate debt.
While the College has not issued its own debt, Standard & Poor’s reaffirmed its “AA” issuer credit rating for the College in July 2014, citing strong student quality and demand, consistent break-even financial performance, and solid fund raising and endowment.
The College’s Debt Management Policy stipulates that maximum annual debt service as a percentage of total operating expense shall not exceed 10 percent and that debt issued in any given year shall be limited to an amount that allows the debt service to total operating expense ratio to remain at or below the 10 percent maximum. This ratio stood at 6.5 percent for fiscal year 2014. The debt service ratio has remained reasonably stable during the past few years, and we expect similar stability for fiscal years 2015 and 2016 even while new debt is being 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.
The College is committed to the effective and efficient use of its financial resources. The William & Mary Promise confirmed this, requiring that the College review its business processes, administrative services and organizational design. The business innovation initiative, launched in December 2013, allows the College to identify the best and most fiscally sound ways to promote innovation in its business processes, to seek new sources of revenue and to reallocate funds to the university’s highest priorities. As President Reveley noted in his December 2013 message to campus, the Promise “calls on the whole William & Mary family to contribute in the ways each of us can contribute: students through tuition, alumni and friends through philanthropy, and faculty and staff through productivity gains in our work on campus. We will all benefit from our common success.”
Although William & Mary already operates at high levels of effectiveness and efficiency, the business innovation initiative provides a structured and ongoing opportunity for discovering how to improve both. Early successes include increased savings through better use of procurement processes, cost avoidance by migrating certain information technology services to the cloud and streamlining human resources processes for position listings and approvals.
The business innovation initiative is guided by a steering committee that is cochaired by the provost and the vice president for strategic initiatives and includes faculty, administrators, a student and two members of the Board of Visitors. An initial assessment phase of potential opportunities was completed with the help of the Censeo Consulting Group in early 2014, and William & Mary has launched several projects since then. Furthermore, a university-wide organizational design review was started in fall 2014 to learn more about what people see as barriers to their effectiveness and to foster long-term thinking about organizational structure. This review included an activity-based survey for all administrators that was completed in October.