Fiscal Year 2009: A Strategy for Changing Times

As was the case for many colleges and universities, fiscal year 2009 presented both financial challenges and opportunities for the University of Denver. A combination of strategic budgeting and a prudent approach to operations served the University well, and despite the difficult economic environment, the University completed the year with its 19th consecutive operating surplus. The operating margin for the year was $23 million on revenues of $341 million (net of financial aid), a result that further enhanced the University’s liquidity, left the institution in a strong cash position, and provided additional resources for continued investments in mission-critical programs and initiatives.

These good results were achieved despite a substantial decline in revenues from endowment earnings and interest on working capital. At the close of fiscal 2009, the University’s endowment stood at $257 million, a decline of $43 million (14.4 percent) from the previous fiscal year. The percentage reduction in actual endowment expenditures during the year was smaller than this figure, though, as the University’s policy calls for spending at 4.5 percent of a 12-quarter trailing average of the value of each endowment fund. Although the amounts of our working capital reached historic highs, interest rates plummeted during the year, resulting in revenues substantially smaller than those realized in fiscal 2008.

As has been the case historically, student tuition formed the University’s principal revenue stream in fiscal 2009. Net tuition and student fees provided 70 percent of total operating revenues during the year. Enrollments were strong throughout the fiscal year, contributing to the positive operating margin realized at year-end. Auxiliary operations accounted for 13 percent of revenues, gift and endowment distributions 6 percent, grants and contracts 7 percent and other revenues 4 percent of the total. In fiscal 2009, 63 percent of the University’s expenditures were associated with compensation of faculty and staff members. Of $318 million in total expenditures, $11 million accrued from service on $143 million of long-term debt. All of the University’s outstanding debt is fixed-rate debt, with an overall cost of capital of 4.3 percent. The University has maintained an A1 bond rating from Moody’s and an A rating from Standard and Poor’s.

The University responded to the turmoil and uncertainty in the world economy with decisive measures that reduced budgeted expenditures for fiscal 2010 and beyond. These measures included recentralization of a number of operations and a two-phase voluntary and involuntary severance program that eliminated staffing redundancies. In total, budgeted expenditures for fiscal 2010 were reduced by more than $12 million. These reductions were done in a careful and targeted manner, and the University expects no adverse impact on its ability to accomplish its mission to provide the highest quality education for students, to grow a thriving research enterprise and to serve the public good. In fact, these measures made new funds available for key investments, most particularly in student financial aid. For fiscal 2010 and beyond, the University substantially increased its pools of budgeted funds for need-based aid for continuing students (both undergraduate and graduate) and for need- and merit-based aid for new first-year undergraduates. The institution more than tripled the size of its pool of funds for emergency aid for students and their families whose financial circumstances change during the year. These actions undoubtedly contributed to the institution’s record enrollments and strong persistence rates in fall 2009.