Fiscal Year 2010: Conservative Strategies Allow for Continued Investments in Key Programs

During the last year, colleges and universities across the nation confronted a challenging economic environment—one characterized by signs of recovery juxtaposed against high unemployment, a skittish stock market and wavering consumer confidence.

Thanks to wise stewardship of its resources, conservative budget strategies and robust demand for the DU academic experience, the University fared well in fiscal year 2010. Even as other private institutions were cutting programs and eliminating faculty positions, DU was able to channel additional resources to targeted programs.  

The University’s solid financial position was bolstered by measures that enhanced liquidity and lessened exposure to market volatility. As a result, the operating margin for fiscal year 2010 was $37.5 million on revenues of $360 million. The majority of the operating surplus was designated to quasi-endowment and to enhancing reserves.

As of June 30, 2010, the University had $138.6 million of debt outstanding. The entire tax-exempt bond portfolio is fixed-rate with a 4.4 percent weighted average cost of capital. Debt service is only 3.5 percent of the University’s operating budget.

The University’s endowment was valued at $288.8 million at the end of the fiscal year, an increase of $31.6 million from the previous year. Only 3 percent of the University’s operating revenue is supported by endowment income. The recent and anticipated ongoing market challenges do not impact the University’s operations materially. However, development of the endowment remains a long-term priority. The University maintains a diversified portfolio relying on 34 investment managers investing in asset categories that include private equity, hedged equity, real assets and absolute return, as well as other equity, fixed-income and real estate investments.  As University management continues to emphasize liquidity, “cash-like” investments comprise almost 20 percent of the portfolio.

The University’s sound practices and stable outlook earned it a rating upgrade from A to A+ from Standard & Poor’s. In awarding this upgrade, Standard and Poor’s cited “the University’s strong demand trends and healthy financial profile, including continued strong operating surpluses and adequate levels of financial resources, during an otherwise challenging economic environment.”

The University’s operating revenue and expense profile remain consistent, with almost 70 percent of revenues coming from student tuition. Auxiliary enterprises make up 12 percent of revenues, while gifts, endowment income, grants and contracts constitute 13.5 percent. In fiscal year 2010, total operating expenses were $322 million. Nearly 62 percent of that was associated with compensation of faculty, staff and students.

Capital funding remains a significant emphasis in the operating budget. The University continues to maintain a reserve for renovation, renewal and deferred maintenance of buildings, facilities and grounds. In fiscal year 2010, $6.75 million was designated for these purposes. In addition, the year saw completion, or near completion, of several major gift-funded construction projects.

As the University moves forward with its operating budget strategy, its emphasis on fiscal vigilance will provide the flexibility necessary to sustain investments in key programs and initiatives. In coming years, the institution will continue to invest in its academic core, particularly in select graduate and professional programs, while striving to achieve operational efficiencies by containing, reducing and restructuring expenses.