13.3 FINANCIAL RESPONSIBILITY

The institution manages its financial resources in a responsible manner.

JUDGEMENT

Compliance Non-Compliance Partial Compliance

NARRATIVE

The Division of Business and Finance provides quality financial services to the university and manages its financial resources in a responsible manner. Table 13.3-i, shows the Condensed Statement of Net Position and Table 13.3-ii the Condensed Statement of Revenues, Expenses, and Changes in Net Position.

Table 13.3-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%

Table 13.3-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%

Revenues and Expenses. The Statement of Revenues, Expenses, and Changes in Net Assets reflects an increase in the net assets and revenues at year end. Some of the highlights are as follows:

Operating revenues increased by $9,297,846.31. An increase in enrollment for the 2019 fiscal year resulted in increases in tuition and fees as well as sales and services.

Total operating expenses increased $8,899,942.72. Salary and benefits increased $1,150,080.06, the net of increases due to newly hired employees, a cost of living increase offset by a decrease in workers compensation payments. The balance of the increase in operating expenses was due to increases in maintenance costs, contracted services, non-capitalized equipment, and marketing expenses.

· Net non-operating revenues increased $2,721,799.08 while other revenues increased by $601,929.33

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 resources 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.

Capital Assets and Debt Administration

The university 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 will very thoughtfully and purposefully issue 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.

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 N.C. 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. Bond agencies Moody’s and Fitch provide A1 and AA- ratings.

Figure 13.3-i: Debt Service to Operating Expenses—A&T vs. National Peers

Figure 13.3-ii: Debt Service to Operating Expenses—A&T vs. UNC System

Debt Funded Projects

Prudent deployment of debt, along with State and external funding sources, has allowed the university to undertake several projects to enhance the student learning, teaching, and research atmosphere. The university’s new student center that opened in Fall 2018 was funded with a bond issuance of $82.96 million in 2015. Principal debt outstanding on the student center at June 30, 2019 was $78.27million and is being financed through available resources for a period of 30 years.

The university’s Engineering Research and Innovation Center (ERIC) is currently being built and is funded in the amount of $90 million by the State’s “Connect NC Bond” issuance, to become the new home of the university’s College of Engineering. 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 also 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 total capital assets, net of accumulated depreciation, as of June 30, 2019, of $307,943,377. This amount includes land, plant (facilities), equipment, and construction in progress, net of related liabilities, debt and is shown in the audited financial statement for Fiscal Year 2019.

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 System 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 Office of State Budget and Management, as shown in the N.C. A&T Budget, FY 2020-2021. Expansion Budget requests and Capital Improvements requests are submitted to the Office of State Budget and Management by the Board of Governors as combined requests for the entire University System. Any Expansion Budget and Capital Improvements appropriations awarded are allocated to individual institutions by decisions of the Board of Governors. The allocations may be on a specific, one-time basis (i.e. Capital Improvements and one-time Expansion Budgets) or on a continuing basis, as is usually the case for most expansion budgets for educational and service activities.

The university’s internal budget allocation process is designed to provide an open, inclusive, and objective process by which to allocate the university’s resources. The university prepares its budget based on its 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. Internal monitoring of budgets is reviewed by OSBM, the university’s external budget agency. Additionally, budget checking is a daily process conducted prior to the expenditure of funds for purchases via the online requisitioning, approval, and purchasing processes. On a quarterly basis, budget updates are provided to the 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.

All state-level budget revisions are processed through the automated Integrated Budget Information System (IBIS) developed by OSBM. Adjustments to the budget that change appropriations or increase receipts are reviewed and approved by OSBM. The university has management flexibility and is able to approve internal budget changes. The University Budget Office maintains a reconciliation of all changes to the budget received by OSBM or UNC-Systems Office throughout the year.

The budget process is key to ensuring effective management and efficient response to unforeseen, contingency, or emergency events such as statewide decreased revenue collections, reductions in appropriations, or natural disasters. At the outset of the internal budget process, the University Budget Office will reserve a percentage (generally 3%) of the state-appropriated funds with approval of the chancellor. If additional funding is needed, the University Budget Office conducts analyses and recommends the most efficient remedy, which may include not filling vacant positions, restriction of travel, or other expenditures review.

Tuition and Fees

N.C. A&T has 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) including both undergraduate, graduate students. 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 N.C. 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 & 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 participate.

After fees have been researched and reviewed by the committee, the fee proposal is presented to the Chancellor’s cabinet for approval, there are open forums for undergraduate and graduate students led by their respective student leadership organizations. 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 the N.C. A&T campus 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. Figure 13.3-iii shows tuition and fees for 2014—2019.

Figure 13.3-iii: Tuition and Fees for 2015—2019.

The university’s attention to tuition costs (as well as to faculty-student ratio, class size, and retention rates) has drawn the attention of prospective students and families as seen in significant but measured enrollment growth.

Figure 13.3-iv: Student Enrollment for Fall 2015—2019

Sponsored Programs, Contracts and Grants

N.C. 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. The funds primarily represent grants from federal agencies, and includes contracts from federal, state, and private industry sources.

Figure 13.3-v illustrates this growth in sponsored research funding, from $53.2 million in 2015 to $64.4 million in 2019.

Figure 13.3-v: Sponsored Funding for 2015—2019

Endowments and Gifts

All gifts and endowments received by the university are processed through the office of the Vice Chancellor for University Advancement. Endowment gifts are managed by the Office of the Vice Chancellor for Business and Finance under the direction of the Endowment Board Committee of the Board of Trustees. The committee consists of up to seven members with the chairman of the Board of Trustees also serving as the chairman of the Endowment Board Committee. The Endowment Board Committee sets investment and spending policies and approves investment managers for the endowment portfolio. The Committee meets quarterly (copy of minutes provided) to review the portfolio and hold discussion with fund managers of the portfolio. The Committee is guided in its investment and spending decision by its policy, which also includes a section on the Uniform Prudent Management of Institutional Funds Act (UPMIFA).

The spending policy adopted by the Endowment Board Committee was designed to provide a relatively even flow of resources for scholarships, professorships, and endowed chair positions from year to year. The budget is based on no more than 5 percent of the trailing twelve-quarter average of the portfolio value at fiscal year-end, June 30. The university has capped the spending rate at 4.5 percent over the past several years. Permanent files are maintained on all endowments in the Comptroller's Office and are reviewed annually for spending eligibility.

As shown in Figure 13.3-vi, between 2009 and 2019 the endowment has grown from $20.74 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 2015-2019, annual allowable spending has grown from $1.43 million to $1.98 million. Table 13.3-iii shows the endowment fund details for 2015-2019.

Figure 13.3-vi: Endowment Asset at Market Value

Table 13.3-iii: Endowment Funds Detail 2015—2019

	2015	2016	2017	2018	2019

Beginning Balance	$45,564,461	$48,240,153	$48,102,663	$55,555,483	$63,637,618
Gifts	$1,825,372	2,454,396	$3,396,887	$3,583,445	$3,258,589
Net Appreciation/ (Depreciation)	$2,805,603	(394,993)	$6,417,461	$ 6,719,268	$4,271,043
Management Fees	($521,342)	(567,526)	($588,909)	($752,813)	($833,703)
Other Transfers In/(Out)				$298,430	$102,000
Amount provided for Spending	($1,433,941)	(1,629,367)	($1,772,619)	($1,766,195)	$1,976,716
Ending Balance	$48,240,153	48,102,663	$55,555,483	$63,637,618	$68,458,831
Net Total Return	5.9%	-0.03%	15.5%	14.5%	7.6%

Closing Comments

The university is clearly operating within its means and its financial health is strong, as evidenced by its $26,202,598 increase in net position from operating and non-operating activities in Fiscal Year 2019. Tuition revenue gains were a robust 7.62 percent and sponsored program revenues continue to climb, as do endowments and other gifts. Overall, operating revenues were up 6.65 percent. Prudent management of the budget, debt, and the endowment while containing expenses further boosts net position.

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 aware of the challenges but feels that its fiscal activities are sustainable with continued responsible oversight, which will enable the university to maintain its competitive position as a land-grant, doctoral, high-research activity institution continuing to provide high quality instruction, research and public service to the State of North Carolina and the nation.

Supporting Documents

1. Division of Business & Finance Organization Chart

2. Audited Financial Statements, Fiscal Year 2019

3. NC A&T Debt Management Policy

4. UNC System Debt Capacity Study Full Report - 2019

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

6. Fitch Final Press Release Affirming Rating 2020

7. Audited Financial Statement for Fiscal Year 2019

8. State of NC Budget Act Chapter 143C

9. NC A&T Budgets FY 2020, 2021

10. NC A&T Budget Advisory Committee

11. NC A&T Strategic Plan 2023