SECTION 13: FINANCIAL AND PHYSICAL RESOURCES

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.

JUDGEMENT

Compliance Non-Compliance Partial Compliance

NARRATIVE

North Carolina Agricultural and Technical State University is financially stable and has strong management control of its financial resources. In compliance with this core requirement, we have included attachments and links to the audited financial statements, audit reports, management letter for N.C. A&T, the annual budget and documentation of the process and approval of the budget, as well as a schedule of unrestricted net assets (excluding plant and plant-related debt).

The financial functions of the university are managed by the Division of Business and Finance. Reporting to the Chancellor, the Vice Chancellor for Business and Finance is the chief financial officer of the university and a member of the Chancellor’s cabinet—the executive team.

The departments within the Division of Business and Finance are headed by four Associate Vice Chancellors (AVC) and the Chief of Police and Public Safety, as shown on its organizational chart. The units managed by the AVCs are:

· Finance and University Comptroller (University Accounting, Capital Projects and Improvements Accounting, Endowment and Gifts Accounting, Financial Reporting, Foundation Accounting, Bursar/Treasurer, Accounts Payable, Payroll, Systems Development, and Travel);

· Budget and Planning;

· Facilities (University Engineer, Physical Plant, Property Management, Purchasing and Contracts, Receiving, and Environmental Health and Safety);

· Campus Enterprises (Athletics and Student Affairs Accounting, Bookstore, Mail Services, One Card, and Ticket Office).

Business and Finance is committed to providing high quality financial services to the university community in a secure environment. The overarching goal is to ensure fiscal integrity, internal controls and accountability necessary to comply with State and Federal laws, sound business practices and the policies of the Board of Trustees and the Board of Governors of the University of North Carolina.

N.C. A&T is a constituent institution of the 17-campus University of North Carolina System, which is a component unit of the State of North Carolina and an integral part of the State’s Comprehensive Annual Financial Report (CAFR). The N.C. A&T University Foundation, Inc. is a legally separate not-for-profit corporation and is reported as a discretely presented component unit in separate financial statements based upon the nature and significance of its relationship to the university and because of its use of a different GAAP reporting model.

The financial statements are prepared in compliance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB). They included financial statements (Fiscal Year 2018 and 2019) that present all funds belonging to the university and its component units.

Overview of the Financial Statements and Financial Analysis

N.C. A&T provides the following analysis as an overview of the financial activities for the fiscal year ended June 30, 2019. Data for the years ended June 30, 2018 and June 30, 2017 are also included. The 2020 report is not yet available. It is expected in December 2020 and will be ready for review by the Onsite team. The information has been prepared by university staff to identify significant transactions, trends and events that have impacted the fiscal health of the university and that may continue to exert influence in future years. We recommend that this discussion and analysis be read in conjunction with the related financial statements and notes to the financial statements.

The Financial Statements

The financial statements for North Carolina Agricultural and Technical State University include:

· Statement of Net Position

· Statement of Revenues, Expenses, and Changes in Net Position

· Statement of Cash Flows.

These statements were prepared in accordance with Governmental Accounting Standards Board (GASB) principles and reflect an economic resource measurement focus and the accrual basis of accounting. Management’s discussion and analysis usually concentrate on the Statement of Net Position as shown in Table 13.1-i and the Statement of Revenues, Expenses, and Changes in Net Position (Table 13.1-ii), using condensed versions for the purposes of this discussion.

Table 13.1-i: Condensed Statement of Net Position

	2019	2018 (as Restated)	Dollar Change	Percent Change
Assets
Current Assets	$ 99,087,361.54	$ 96,672,429.71	$ 2,414,931.83	2.50%
Noncurrent Capital Assets, Net	406,254,135.54	395,196,138.11	11,057,997.43	2.80%
Other Noncurrent Assets	75,149,602.84	78,768,627.58	(3,619,024.74)	(4.59%)
Total Assets	580,491,099.92	570,637,195.40	9,853,904.52	1.73%
Deferred Outflows of Resources
Deferred Loss on Refunding	203,712.19	248,008.53	(44,296.34)	(17.86%)
Deferred Outflows Related to Pensions	26,457,001.31	18,829,612.92	7,627,388.39	40.51%
Deferred Outflows Related to OPEB	20,606,245.57	7,007,646.70	13,598,598.87	194.05%
Total Deferred Outflows	47,266,959.07	26,085,268.15	21,181,690.92	81.20%
Liabilities
Current Liabilities	17,592,597.63	19,946,208.12	(2,353,610.49)	(11.80%)
Long-Term Liabilities, Net	320,569,492.08	327,889,595.76	(7,320,103.68)	(2.23%)
Other Noncurrent Liabilities	958,620.31	988,351.78	(29,731.47)	(3.01%)
Total Liabilities	339,120,710.02	348,824,155.66	(9,703,445.64)	(2.78%)
Deferred Inflows of Resources
Deferred Inflows Related to Endowments	131,166.67		131,166.67
Deferred Inflows Related to Pensions	423,224.00	1,050,456.00	(627,232.00)	(59.71%)
Deferred Inflows Related to OPEB	104,613,040.00	89,580,532.00	15,032,508.00	16.78%
Total Deferred Inflows of Resources	105,167,430.67	90,630,988.00	14,536,442.67	16.04%
Net Position
Net Investment in Capital Assets	307,943,377.12	302,442,526.82	5,500,850.30	1.82%
Restricted-Nonexpendable	44,716,002.57	41,099,238.24	3,616,764.33	8.80%
Restricted-Expendable	34,813,911.82	31,740,391.81	3,073,520.01	9.68%
Unrestricted	(204,003,373.21)	(218,014,836.98)	14,011,463.77	6.43%
Total Net Position	$ 183,469,918.30	$ 157,267,319.89	$ 26,202,598.41	16.66%

Net position at year-end was $183,469,918.30, an increase of $26,202,598.41 over the prior year, as restated (refer to Note 19 of the Notes to the Financial Statements for details) for workers’ compensation liability.

• The increase in nonexpendable net position was primarily due to restricted additions to endowments gifted in fiscal year 2019 totaling $3,731,496.16.

• Expendable restricted net position increased $3,073,520.01 primarily due to an increase of $2,994,597.49 in endowment earnings, net of management fees, resulting from solid market performance in fiscal year 2019.

• Unrestricted net position increased $14,011,463.77 primarily due to a net decrease in the year-end balances related to pension and OPEB plans, along with increased enrollment and rates for student auxiliaries.

Statement of Revenues, Expenses, and Changes in Net Position

The Statement of Revenues, Expenses, and Changes in Net Position reports the activity of the university during the year and is divided into four major components: operating revenues; operating expenses; non-operating revenues (expenses); and other revenues. Revenues are reported by major source and expenses are reported by natural classification. Intra-departmental sales, services and transfers are eliminated, and depreciation of capital assets is recorded.

Table 13.1-ii: Condensed Statement of Revenues, Expenses, and Changes in Net Position

	2019	2018	Dollar Change	Percent Change
Operating Revenues Student Tuition and Fees, Net	$ 76,524,561.35	$ 71,108,701.45	$ 5,415,859.90	7.62%
Federal Appropriations	10,461,730.54	9,066,200.23	1,395,530.31	15.39%
Grants and Contracts	24,402,198.76	26,461,358.88	(2,059,160.12)	(7.78%)
Sales and Services, Net	31,575,700.74	28,776,430.98	2,799,269.76	9.73%
Other Operating Revenues	6,109,826.25	4,363,479.79	1,746,346.46	40.02%
Total Operating Revenues	149,074,017.64	139,776,171.33	9,297,846.31	6.65%
Operating Expenses Salaries and Benefits	171,215,725.67	170,065,645.61	1,150,080.06	0.68%
Supplies and Materials	17,996,413.49	17,352,235.97	644,177.52	3.71%
Services	64,833,191.88	59,199,827.69	5,633,364.19	9.52%
Scholarships and Fellowships	19,140,583.12	18,890,926.05	249,657.07	1.32%
Utilities	6,173,635.58	6,076,997.58	96,638.00	1.59%
Depreciation	13,422,751.84	12,296,725.96	1,126,025.88	9.16%
Total Operating Expenses	292,782,301.58	283,882,358.86	8,899,942.72	3.14%
Operating Loss	(143,708,283.94)	(144,106,187.53)	397,903.59	(0.28%)
Nonoperating Revenues (Expenses) State Appropriations	93,838,061.78	92,315,804.18	1,522,257.60	1.65%
Noncapital Grants and Gifts	62,657,740.35	60,345,407.86	2,312,332.49	3.83%
Interest and Fees on Debt	(3,988,095.35)	(4,052,168.43)	64,073.08	(1.58%)
Other Nonoperating Expenses	(430,340.52)	(284,828.48)	(145,512.04)	51.09%
Investment Income, Net	5,558,962.14	6,590,314.19	(1,031,352.05)	(15.65%)
Net Nonoperating Revenues	157,636,328.40	154,914,529.32	2,721,799.08	1.76%
Income Before Other Revenues	13,928,044.46	10,808,341.79	3,119,702.67	28.86%
Other Revenues Capital Appropriations and Grants	8,426,485.47	6,945,645.42	1,480,840.05	21.32%
Capital Gifts	116,572.32	1,416,317.06	(1,299,744.74)	(91.77%)
Additions to Endowments	3,731,496.16	3,310,662.14	420,834.02	12.71%
Total Other Revenues	12,274,553.95	11,672,624.62	601,929.33	5.16%
Total Increase in Net Position	26,202,598.41	22,480,966.41	3,721,632.00	16.55%
Net Position - Beginning of the Year	157,267,319.89	138,134,752.60	19,132,567.29	13.85%
Restatement		(3,348,399.12)	3,348,399.12
Net Position - End of the Year	$ 183,469,918.30	$ 157,267,319.89	$ 26,202,598.41	16.66%

The Statement of Revenues, Expenses, and Changes in Net Position reflects an increase in net position at year-end of $26,202,598.41, which is an increase of $3,721,632.00 from the prior fiscal year. Total revenues were $323,403,335.86 compared to $310,700,322.18 from the previous year, and total expenses were $297,200,737.45 compared to $288,219,355.77 from the previous year.

Effects of Other Postemployment Benefits (OPEB)

In Fiscal Year 2018, the university implemented GASB Statement No.75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (OPEB). Participants in the State’s OPEB plans, including the university, were allocated a proportionate share of the OPEB plan’s net OPEB liabilities (assets), deferred outflows of resources, deferred inflows of resource, and OPEB benefits expense, specifically for the Disability Income Plan of North Carolina (DIPNC) and the Retiree Health Benefit Fund (RHBF). For the purpose of reporting actuarially determined OPEB benefits expense for Fiscal Year 2018, the Statement of Net Position was restated as of June 30, 2017.

Table 13.1-iii: Unrestricted Net Assets, Excluding Plant Assets and Related Debt (UNAEP)

	2019	2018	2017

Unrestricted Net Assets, excluding plant assets and related debt	(204,003,373)	(214,666,438)	(222,236,979)

Impact of OPEB and Pensions	265,658,359	276,185,180	281,396,214

Unrestricted Net Assets excluding OPEB and Pensions	61,654,986	61,518,742	59,159,235

Capital Assets and Debt Administration

The university is fiscally conservative in the administration of its debt and is prudent in its expenditures for capital projects that enhance the teaching/learning experience for its students, provide adequate space and equipment for its research, and maintain the quality of its physical plant. As a state university, N.C. A&T receives funding from the State budget but because of limitations on that budget, the university very thoughtfully and purposefully issues debt.

Recognizing the benefits of strategic debt issuance, the Board of Trustees approved a Debt Management Policy in 2018 that was developed to assist A&T’s efforts to manage its debt on a long-term, portfolio basis and in a manner consistent with A&T’s capital improvement plan, stated policies, objectives and core values (See Audited Financial Statements, Fiscal Year ending 2019).

Additionally, through a UNC system-wide contract with a financial advisor the University annually conducts a debt capacity study that, in compliance with the debt management policy, analyzes key debt ratios and provides comparable data on UNC system and external peers. The peer comparison shows that NC A&T situates itself in an excellent position with respect to debt capacity. Current debt capacity is calculated to be $88.6 million and over $111.6 million by 2024 if no other debt is issued (See UNC System Debt Capacity Study Full Report, 2019.

Bond agencies Moody’s and Fitch provide A1 and AA- ratings (Moody’s ; Fitch).

Figure 13.1-i: N.C. A&T vs National Peers

Figure 13.1-ii: N.C. A&T vs UNC Peers

The university’s new student center that opened in the fall of 2018 was funded with a bond issuance of $82,955,000.00 in 2015. Principal debt outstanding on the student center at June 30, 2019 was $78,270,000.00 and is being financed through available resources for a period of 30 years.

An Engineering Research and Innovation Center (ERIC) is currently in the design phase, and is being funded in the amount of $90 million by the State’s “Connect NC Bond” issuance. This Center will facilitate the discovery and transfer of knowledge from academia to industry and other government agencies, will further interdisciplinary research projects, and will expand the instructional and research capacity of America’s largest producer of African American engineering graduates. This State funded project will not impact the university’s debt capacity.

Funded in part with US Department of Agriculture 1890s facilities funds, construction has begun on a multi-purpose farm pavilion. The facility is budgeted at approximately $5 million and will expand the university’s capacity for agricultural education and research. The 17,000 square foot facility will include an auditorium, labs, a 50-person classroom, a demonstration kitchen and a 400-person conference room. There are other projects such as the student and community garden and the Cooperative Extension Innovation Station (mobile STEM lab) that will allow the University to continually expand its level of community outreach and service.

The university’s Statement of Net Position reflects a total investment in capital assets, net of accumulated depreciation and related liabilities, as of June 30, 2019, of $307,943,377. This amount includes land, plant (facilities), equipment, and construction in progress, net of related liabilities.

Budget

The State Executive Budget Act is the legal foundation for the North Carolina State budget system. The Office of State Budget and Management (OSBM) submits instruction to the University of North Carolina Systems Office and its Board of Governors to direct the preparation and submission of budgets as may be required by the General Assembly on a biennium or annual basis. The Board of Governors presents to the legislature the request for continuation funds for each of the 17 constituent institutions of the University System, including N.C. A&T. Constituent institutions share a common budget process that is administered by the UNC System Office.

The state of North Carolina has a biennium (two-year) budget cycle. The process for the current biennium, from July 1, 2019, through June 30, 2021, began during the fall of 2018 and, to-date, has not been approved by the General Assembly and the Governor. The second year of the biennium is referred to as a “short legislative session.” Budget submissions during the second year of the biennium occur primarily due to adjustments in state revenue forecasts with either budget reductions or expansions as necessary.

Appropriations, awarded in response to the budget requests, are made directly to the individual institutions in the university system by the OSBM, e.g., shown in Audited Financial Statements—Fiscal Year 2019. The university received the following state support over the past three years:

Table 13.1-iv: State Appropriations

	2018	2019	2020
Noncapital Appropriations	$92,315,806	$93,838.063	$95,490,571
Capital Appropriations	$2,292,115	$1,393,521	--------
Total Appropriations	$94,607,921	$95,231,584	95,490,571

The university’s internal budget allocation process is designed to provide an open, inclusive and objective process by which to allocate N.C. A&T’s resources. The university prepares its budgets based on a strategic plan, which is based on the University’s mission and strategic directives from the University of North Carolina System Office (governing body), the Chancellor, and the University’s Board of Trustees.

Impacts on the budget development process include:

Changes in tuition and fees,
Enrollment projections,
Levels of state appropriations,
Institutional financial condition,
UNC System Office requirements,
Authorizing tuition and fee statutes, and
Priorities defined through the N.C. A&T Strategic Plan.

The budget process is key to ensuring effective management and efficient response to unforeseen events such as state-wide decreased revenue collections or natural disasters. At the outset, 3 percent is set aside in reserves for such matters. If more is needed to accommodate reductions in appropriations, the Budget Office conducts analysis and recommends the most efficient remedy, which may include not filling vacant positions or restriction on travel or other expenditures review.

Tuition and Fees

Tuition and fee revenue is a significant component of the financial health of the university. Though revenue growth is essential, there continues to be an enhanced focus–both at the university and at the UNC Board of Governors level - on ensuring that students can afford and earn degrees. For example, in Fall 2017, a fixed tuition program was instituted for the incoming freshman class that sets a standard tuition rate for eight semesters, providing certainty and stability of tuition rates throughout the four-year degree. For fiscal year 2020 incoming students, the Board of Governors set a 3 percent tuition increase for resident students. The transparency is appreciated by parents and students, and may be one of several reasons student enrollment has been steadily increasing. The fall 2017 enrollment of 11,877 set an historic high mark for the university, establishing the school as the largest HBCU in the nation. Fall 2018 and 2019 enrollments both topped that record with 12,142 and 12,556 students enrolled, and Fall 2020 “intent to enroll” student applications are 27 percent higher than the 2019 submissions.

Figure 13.1-iii: Tuition and Fees Revenue

Figure 13.1-iv: Student Enrollment

N.C. A&T has established a consistent and inclusive process for setting tuition and fees for an academic year. There is one committee for tuition and fees comprised of key administrators in Business and Finance, Student Affairs, and Academic Affairs. The committee also includes three to four student members each year with at least two representatives from the Student Government Association (SGA) to include both undergraduate, graduate and the general student body. Students are selected for participation early in their academic career to serve for more than one year so that they are well versed in the process and able to relay information to the general student population.

Each year, the UNC-System Office prepares criteria for submission of fee proposals from each constituent institution. The instructions serve as a guide for NC A&T to propose tuition and fee increases and/or decreases. Information is gathered from the various units including strategic long- and short-range planning goals, additional expense information and student feedback to determine where fee increases and/or decreases are warranted.

Required Fees for the university include Education and Technology, Athletics, Student Activities, Health Services, and Debt Service. On campus fees include Room (housing) and Board (food services). Miscellaneous Fees include several different categories, such as: Shuttle service fee, One-card fee, Chemistry lab breakage fee, Parking fee, COOP extension fee etc. As fee proposals are introduced, the entire university community has an opportunity to join the fee meeting and explain/justify the need for a particular increase.

After fees have been researched and reviewed by the committee, the fee proposal is presented to the Chancellor’s cabinet. After cabinet approval, there are open forums for undergraduate and graduate students led by the undergraduate SGA president and the Graduate Student Advisory Council president. At these forums students are encouraged to ask questions and review the fee proposals. There is representation from each area that a fee request is proposed so that all questions and concerns can be readily and appropriately addressed. After review and approval from the student body, the fee recommendation is presented to the Board of Trustees for discussion, review and approval. Once Board of Trustee approval is obtained the final fee proposal is submitted to the UNC System Office for the Board of Governors’ approval.

This process has worked very well for N.C. A&T and enabled every group to be well represented. All parties affected walk away from the table with a clear understanding of the university’s fee structure for the following year.

Sales and Services

The university’s main generators of sales and services are Student Housing and Campus Enterprises. Residing in the Division of Business and Finance, Campus Enterprises supports the university community through Dining Services, university Bookstore, Convenience Store, Ticket Office, Aggie OneCard, Mail Center, Vending Services, Concession, Parking and Transportation Services. Eliminating a 2016 one-time receipt from the University’s food service provider of $4.37 million for investment purposes in a temporary facility, sales and services net revenue has shown a steady increase from 2015 – 2019.

Table 13.1-v: Sales and Services Revenue

Revenue (Millions)	2015	2016	2017	2018	2019
Sales and Services, Net	$21.79	23.99	25.21	28.78	31.58

Sponsored Programs, Contracts and Grants

Another significant source of revenue comes in the form of sponsored programs, grant, co-operative agreements, and contract awards. Recognized by the Carnegie Foundation as a Doctoral University: High Research activity institution for its high-quality academic research, NC A&T has ranked third in sponsored research funding in the UNC system since 2005, behind UNC-Chapel Hill and North Carolina State University. The university receives over $60M per year in sponsored research, with FY 2019 funding totaling $64.4M. Over $20M per year is from the U.S. Department of Agriculture.

Although the amount each year from other sponsors varies, the university typically receives about $20M per year for engineering research from NSF, DOD, NASA, and DOE. The Department of Education provides another $10M to $12M in Title III and competitive grants. Most of the remainder of the sponsored research dollars are for science and technology research with a small amount of support for the humanities and social sciences. Clearly STEM research dominates the enterprise at N.C. A&T. Although the majority of funds are grants from federal agencies, the university also receives contracts from federal, state, and private industry sponsors and participates in contract mechanisms such as ID/IQ contracts.

The following illustrates this growth in sponsored research funding:

Figure 13.1—v: Extramural Funding

Endowments

The University and its associated foundation continue to grow the endowment, which provides additional funding for scholarships, professorships, and endowed chair positions. Between 2009 and 2019 the endowment has grown from $20.75 million to $68.46 million, an average annual growth rate of 12.9 percent. This has enabled a steady growth in endowment spending. For example, from 2015 to 2019, annual allowable spending has grown from $1.43 million to $1.98 million.

While the Endowment Board’s Spending Policy calls for a 4.5 percent spending rate calculated using a 12-quarter trailing average, the effective spending rate can be lower to protect an endowment’s corpus or because of particular spending restrictions on some donations.

Figure 13.1-vi: Market Value of Endowments

Capital Campaign

With the public launch of “The Power of DO: The Campaign for North Carolina Agricultural and Technical state University”, the institution has reached the $93 million mark in an initial $85 million campaign with more than six months remaining. We have revised our goal upwards to $100 million. Over $43 million has been committed for student support, with 230 new endowments for scholarship funds from donors. Throughout the campaign period, the university has seen giving grow from approximately $7 million per year to over $15 million and gifts from alumni growing from less than $3 million to over $6 million. As a result, six new endowed chairs and professorships have been created and our endowment per student ratio is now greater than $5,100 per student, which is now competitive among our peers and will provide a perpetual source of revenue to support our institutional aspirations. The campaign, under Chancellor Martin’s leadership, will conclude on December 31, 2020, and is expected to be the most successful campaign in the university’s history.

Institutional Audit

The annual fiscal year-end audit requirement is fulfilled by the NC Office of the State Auditor (OSA). The OSA provides audit services to North Carolina state agencies, including annual audits of state financial statements. As a state agency, NC A&T is included in those statewide audits (See Statewide Single Audit Report FSA-2019-8730). The Fiscal Year 2020 Audit Report is anticipated to be completed by December 2020.

The university received unqualified audit opinions on its audited financial statements for fiscal years ending June 30, 2010 through June 30, 2019, which demonstrates the financial statements fairly present the financial condition of the organization (Audited Financial States for Fiscal Year 2018 and 2019). The university works diligently to address audit findings as soon as they become apparent, and an independent review procedure is in place that involves the university’s Office of Internal Auditing staff, a representative from the UNC System Office, and the State audit team to assure that findings are addressed in a timely manner.

The Office of Internal Auditing (OIA) reports administratively to the Chancellor and functionally to the Board of Trustees Risk Management, Audit & Compliance Committee to ensure independence in carrying out its responsibility of promoting and supporting a culture of compliance and control consciousness (Org Chart). To continually improve its services and professional abilities, the OIA staff members receive professional development annually. The OIA conducts audits of cash receipting and key operating areas. The North Carolina Office of the State Auditor, as well as the OIA, perform financial and program audits on an annual basis. The OIA maintains a hotline, which provides university employees with a confidential way to report suspected fraud, waste, and abuse at the university.

The OIA develops an annual audit plan and includes audits of areas of high risk and/or where management has expressed concern. The OIA performs a risk assessment that aids in the development of the audit plan. The OIA seeks input on high risks and possible exposures and their likelihood or importance. The results of the assessment are used to prepare the audit plan. The audit plan is approved by the Chancellor and the Board of Trustees Risk Management, Audit & Compliance Committee. The approved plan is provided to the University of North Carolina System Office for presentation to the Board of Governors audit committee per UNC Policy Manual 100.1, 301G.

The OIA provides copies of all audit reports, as they are issued, to the Board of Trustees Risk Management, Audit & Compliance Committee, the UNC System Office, and the NC Office of State Budget & Management. In addition, the OIA provides annually to the UNC System Office a summary of audit work completed during the fiscal year. Throughout each fiscal year, the OIA performs internal control assessments, performs audits of university programs and departments, and investigates complaints received via the University Hotline, referrals from the Office of the State Auditor and other complaints received via email or phone.

Additionally, the university athletics department is required by the NCAA to have an annual procedures review performed. The department has contracted with an independent accounting firm, RSM McGladrey, to conduct this annual review. Over forty operational and financial items are reviewed, and there have been no findings.

Economic Forecast

The financial health of the university is strong, as evidenced by its $26,202,598 increase in net position from operating and non-operating activities in Fiscal Year 2019. Though the North Carolina economy is continuing to grow modestly, state appropriation support did not follow. State appropriations were relatively flat, increasing slightly by 1.65 percent. However, tuition revenue gains were a robust 7.62 percent and sponsored program revenues continue to climb. Overall, operating revenues were up 6.65 percent.

Management intends to continue to maintain a close watch over resources in order to respond to emerging challenges and opportunities. Key to this effort is monitoring the primary sources of revenue, especially student tuition and fees, state appropriations, and sponsored program revenue, and identifying additional revenue streams for the university. Management also will continue to exercise prudent controls on capital and other reserves.

While acknowledging the debate over the value of national rankings, the university is proud that, in its 2019 survey rankings, U.S. News & World Report found the university to be the top public HBCU in the nation. As noted by Chancellor Martin, “Our disciplined focus in the implementation of our strategic plan is responsible for many gains across the University, including our upward movement in a range of external rankings”. The university’s attention to tuition costs, faculty-student ratio, class size, and retention rates may positively affect those rankings, but more importantly draw the attention of prospective students and families. Complementing enrollment growth, academically both average GPA and SAT scores of incoming freshmen are on the rise which can only enhance the intellectual climate and academic experience for students.

Because the university is ultimately subject to the same economic variables that affect other financial entities, it is difficult to predict future outcomes. Management is well aware of the challenges but feels that by continuing to pursue its ambitious goals, the university will become even more competitive as a land-grant, doctoral, high-research activity institution that will continue to provide quality instruction, research and public service to the State of North Carolina and the nation.

DEVELOPMENTS RELATED TO THE COVID-19 PANDEMIC

The outbreak of COVID-19 has been declared a pandemic by the World Health Organization. The pandemic has affected travel, commerce and financial markets globally. On March 30, 2020, North Carolina Governor Roy Cooper issued a statewide Stay at Home Order through April 30, 2020 in response to the outbreak.

Administrators at the UNC System (the System) and the university are closely monitoring the situation and are in regular contact with local, state and federal health agencies. The constituent institutions of the System remain open and continue to deliver educational instruction to students; however, in an effort to minimize the risk of the spread of COVID-19 and to protect the health of students, faculty and employees, the System transitioned from in-person instruction to alternative course delivery in March 2020. Additionally, the System directed each constituent institution to (a) direct students who occupy university housing to return to their permanent residences unless granted an exception by the institution, (b) reduce campus dining operations to takeout or similar options, and (c) utilize teleworking arrangements for employees who are not mandatory for continued operations. The System further instructed constituent institutions in April 2020 to provide prorated reimbursements to students for unused housing and dining services for the spring 2020 semester as a result of the System's response to the outbreak. The measures described in this paragraph were in place through the end of the semester, and summer session instruction took place remotely.

On April 29, 2020, the Interim President of the System issued a statement announcing the System's intention to move back to on-campus learning for the fall 2020 semester. The Interim President's statement indicated that the System will work closely with the administration of each of the constituent institutions on a plan forward and that each institution will have the flexibility to determine the local steps and precautions necessary to protect all students, faculty and staff including staggered academic calendars and reduced student and staff density.

Consistent with the President’s statement, the University will remain open in the Fall 2020 for the delivery of educational instruction. The delivery method of instruction will vary based upon the control of the spread of the pandemic. In anticipation of continued spread and the preferences of educational instruction, the university has made significant investments in the online learning platform, expanding capacity and enhancing technology. The university will expand on-line class offerings to allow students to continue to persist in their educational efforts.

The change in educational delivery, economic impact of the pandemic, and infrastructure and other investments required to respond to the pandemic has adversely impacted the financial operations. Accordingly, the university took immediate steps to respond to a range of potential reduction in funding sources for the fiscal year ending June 30, 2021, including suspension of nonessential human resource actions, limiting purchases of goods and services to mission critical and COVID-19 items only, and limiting travel and training to essential activities.

The university has received funds of approximately $44 million from various sources to partially offset the decrease in revenues and increase in one-time expenses caused by the COVID-19 outbreak. The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") of $14.1 million was used to provide eligible students with emergency financial aid grants with the other half used to offset university expenses related to the pandemic. The CARES Act for the Historically Black Colleges and Universities (HBCU's) of $28.2 million is being used to provide student support and to offset expenses and revenue shortfalls related to the pandemic. In addition, on May 4, Governor Cooper signed into law the 2020 COVID-19 Recovery Act (the "NC COVID Recovery Act"), which included $44,400,000 of emergency relief funds to the System to be allocated to the constituent institutions for costs related to the transition to online instructions, facility sanitation, canceled activities and other emergency expenses. The University received approximately $2.1 million from the System from these emergency relief funds.

Additionally, from an enrollment standpoint, the university continues to be an attractive option for prospective and current students. Enrollment projections for Fall 2020 for new freshmen are at the same levels as for Fall 2019. Additionally, continuing student enrollments appears to be exceeding the levels of the prior year.

The continued spread of COVID-19 has impacted and will continue to impact global financial markets, national, state, and local economies, and the higher education landscape in general. As described above, the outbreak has and will continue to have a significant impact on the operations of the System and the university. No one can predict the duration and ultimate effects of the outbreak on the operations and finances of the university including, without limitation, enrollment, demand for housing, dining and other auxiliary services. However, as a result of budgetary actions implemented and funding support from various sources of CARES Act funding, the university is well positioned to provide for the continued quality education of the students while maintaining financial viability of the university.

Supporting Documents

1. Division of Business & Finance Organization Chart

2. N.C. A&T University Foundation, Inc

3. Audited Financial Statements, Fiscal Year 2018

4. Audited Financial Statements, Fiscal Year 2019

5. Financial Activities for the Fiscal Year Ended June 30, 2019

6. Debt Management Policy NCAT Approved Feb, 2018

7. UNC System Debt Capacity Study Full Report (2019)

8. Moody's US Higher Ed Ratings - Public Private HBCUs May 2017

9. Fitch Press Release Affirming Rating 2020

10. State of NC Budget Act Chapter 143C

11. NC A&T Budgets FY 2020, 2021