13.1     FINANCIAL RESOURCES [CR]

The institution has sound financial resources and a demonstrated, stable financial base to support the mission of the institution and the scope of its programs and services.

Judgment

x   Compliance           o  Non-Compliance           o Partial Compliance

Narrative  

The University of Louisiana at Lafayette has a sound financial base and has demonstrated financial stability as evidenced by its financial ratios and bond ratings.

Financial Ratios

Key ratios are an important year-to-year financial measurement, and the University’s financial stability may be measured historically by examining its Composite Financial Index (CFI). The CFI methodology was developed by Prager, Sealy & Co., LLC, KPMG, and Attain, and provides a comprehensive understanding of the financial health of the institution by comparing multiple indicators. Analyzing the trends of an institution’s CFI score over a period of years enables a more stable long-term view of an institution’s financial stability given fluctuations in internal and external circumstances. As outlined in the Strategic Financial Analysis for Higher Education-Seventh Edition, the CFI measure is established by first answering the four key specific questions concerning financial health of an institution and calculating a financial measure that addresses the overall question of whether an institution is financially healthy:

·         Are resources sufficient and flexible enough to support the mission? - Primary Reserve Ratio

·         Are debt resources managed strategically to advance the mission? - Viability Ratio

·         Does asset performance and management support the strategic direction? - Return on Net Asset Ratio

·         Do operating results indicate the institution is living within available resources? - Net Operating Revenues Ratio

Table 13.1 — 1 gives UL Lafayette’s CFI for the past five fiscal years.

Table 13.1 – 1: University of Louisiana at Lafayette Composite Financial Index (CFI)

Adjusted for GASB Liabilities

The ratio calculations are based on information presented in the audited financial statements of the University of Louisiana System provided in Standard 13.2.

It should be noted that because the composite score of the University is greatly affected by the implementation of GASB Statement 16 - Accounting for Compensated Absences, GASB Statement 68 - Accounting and Financial Reporting for Pensions, and GASB Statement 75 - Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, the effects of the liabilities and related expenses associated with these GASB statements have been adjusted from the ratio calculation.

Primary Reserve Ratio

The primary reserve ratio measures an institution’s financial health by comparing accumulated reserves to annual operating demands. It is calculated by dividing expendable resources at the end of a period by the operating expenses incurred during that period. Minimal financial health for the ratio is deemed to be 0.4. Many factors have caused the ratio to decrease since FY2013-2014. Since that period, the University has been reinvesting in its infrastructure and personnel to include the implementation of a new Enterprise Resource Planning (ERP) management information system. All of these objectives were part of the University Strategic Plan 2015-2020 (Faculty SI 1 and 2). The reinvestment in personnel resulted in increases in salary and related benefits expenses due to merit increases in FY2015-2016 and FY2017-2018. The reinvestment in the University’s infrastructure has caused a decrease in expendable resources but has increased the capital assets of the University. While these internal investments have had a short-term negative effect on the University’s primary reserve ratio, they will have a long-term positive effect.   

Viability Ratio

The viability ratio measures one of the most basic determinants of clear financial health: the availability of expendable net assets to cover debt should the institution need to settle its obligation as of the balance sheet date. While a ratio of 1:1 or greater is desirable, public institutions can operate effectively at a ratio far less than 1:1 because of the ongoing benefit of student fees pledged/dedicated to the future debt. In addition, the University is in the middle of a major capital expansion program, which has had an impact on this ratio; however, the University's debt service coverage ratio for each of the outstanding bond issues reflected in the University’s financial statements meets or exceeds requirements in all cases.

Return on Net Asset Ratio

The return on net asset ratio determines whether the institution is financially better off than in previous years by measuring total economic return. Like others, this ratio is more meaningful when reviewed over time. An improving trend, as is the case at the University, indicates the institution is increasing its net assets and is likely to be able to set aside financial resources to strengthen its future financial flexibility.

Net Operating Revenue Ratio

The net operating revenue ratio indicates whether an institution was able to conduct operating activities by using just the operating revenues generated during the period. The ratio is calculated by dividing the net operating revenues by the operating revenues. Minimal financial health for the ratio is 2 percent, meaning that operating revenues exceed operating expenses by 2 percent of operating revenues. As shown in Table 13.1 – 1 above, the net operating revenues ratio is on a positive trend after decreases in FY2014-2015 and FY2015-2016. Operating revenues, particularly tuition and fees, have increased in each of the years shown in spite of decreasing state support, because of tuition rate increases coupled with steady enrollment. The ratio in FY2017-2018, while within the recommended range, decreased because of a merit award, which increased salary and related benefits expenses. In addition, because of renewed investment in capital assets, depreciation expense has increased. 

Composite Financial Index (CFI)

The CFI has remained relatively stable within the trend period given the reinvestment program the University embarked on during this same period and its ability to offset the declining state support with self-generated revenues. This provides another demonstration of the University’s financial stability.

Bond Ratings

While financial ratios indicate past and present financial stability in relation to specific data, bond ratings provide a more holistic evaluation of an institution’s financial stability. On March 29, 2018, S&P Global Ratings assigned its “BBB+” long-term rating to the University’s series 2018 student housing and parking project revenue bonds, issued for the Ragin' Cajun Facilities Corp. (a blended component unit). At the same time, it affirmed the “BBB+” underlying rating on the series 2010, 2012, and 2017 student housing and parking bonds. In addition, S&P Global Ratings affirmed its   “A-” rating on the series 2010 higher education revenue bonds (Student Union bonds) and affirmed its “BBB+” rating on the series 2013 revenue bonds issued for the Lewis Street parking garage project and athletic facilities project. It stated in the review that the outlook on all ratings is stable. This independent assessment by a third party provides additional support to University’s financial stability.

Supporting Documents

SP Rating 2018

Strategic Plan 2015-2020: Faculty SI 1 and 2